Don Zech's Blog

January, 2012

2012-01-03T09:08:00.000-08:00

January 1, 2012

RE: Monthly Letter

Happy New Year! As many of my long term readers know, I don’t send out a January letter as I am busy putting together our annual Gold Report which will come to you at the end of the month and hopefully give you some vision as to what we see for the year ahead. The other reason for not writing is that December is traditionally very slow so we don’t have much activity to report.

I’d like to give you a little hope for the New Year. This was the busiest Thanksgiving to New Year’s period I have seen in years. This gives me a lot of hope…but they have to close – but that’s what we do.

Unemployment got under 10% (9.7%) in San Diego County also giving everyone some hope.

I want to thank all of you in helping me and the entire team at CDC Commercial to survive these tough times. We look forward to building our relationship and a mutually profitable year in 2012!

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

December, 2011

2011-12-02T06:59:00.000-08:00

December 1, 2011

RE: Monthly Letter

Tis the season to be jolly and giving. Every year at this time people rush around like wild herds of buffalo storming store after store looking for the best deal for their “gifts.” Sometimes to the point that people literally get trampled when the doors open on Black Friday (it is suddenly so clear why they call it that!)

What’s the point? Do we all really need dedicated seasons to remember to be thankful, generous, loving, etc. This particular holiday period is apparently all about gift giving and being generous. Yet how generous are we when all we do is open our wallet but close our hearts. When we give because it’s the thing to do rather than always doing more than what is expected.

Generosity isn’t so much about giving of things. Its true nature is in giving of ourselves, our heart, our smile, our full attention. When we are generous in this way the world around us changes for the better…

As I sit down to write this monthly letter, I realized that I have been writing it for over 25 years! Over the time frame, I can honestly say I’ve enjoyed writing this letter and working with my clients and brokers through the good times and bad times. In life and business we often break things down into what we can do, what we should do and what we must do. Failure to realize the difference will have dire consequences to your company, career and life. On the other hand, it is most amazing to me that most salesmen (or women) fail to realize that when they become the best they can be, they will attract the right offers rather than seek them.

Of course you have to be good at what you do and your product or deliverable must be beyond average. However, all things being equal, the relationship wins the day. Relationships take time because it takes time to build trust. At times, relationships that were established months or even years prior will yield results you never even dreamed of.
Once you’ve determined what you love to do and dedicate yourself to getting the skills, the third part is about believing. You must believe in your company-believe in your product-believe in your service-and believe in yourself. If you believe deeply that everything is “best,” your message will be so enthusiastically delivered that others will catch your passion. A deep self-belief will create enthusiasm, and a deep self-belief will create passion.

The final part is about your attitude. Attitude starts from within. It’s the mood you’re in when you wake up in the morning, the mood you stay in all day long, and the mood you’re in when you go to bed.

But attitude is not a feeling. Attitude is a life-long dedication to the study of positive thought and the character/charisma that you display as you interact with others. If it’s not internal, it can never be external.

John Peterson, the founder of National Cash Register (NCR) said it best when he said “put your heart into your work” and better yet when he said, “your heart is attached to the wallet.”

The funny thing is that if you figure out how to truly be interested in someone you meet, with the goal of building up a friendship instead of trying to get something out of that person, you will almost always have something happen later down the line that benefits your business or yourself personally.

During the Holiday Season more than ever, our thoughts turn gratefully to those of you who have made our progress and success possible. As we get to the end of the year, we once again realize it isn’t about what you own but who you know and I am happy that we have come to know each other this year and I hope that we both make an effort this coming year to talk, do business and build our relationship. In the meantime, the entire team at CDC Commercial wishes you a holiday in which the opening of presents overshadows the closing of transactions and due diligence is reserved for finding just the right gift. A season in which time with loved ones is the most important appointment on your calendar. And just remember… to “Keep Your Fork.” I hope you enjoy the story . . . Happy Holidays!

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

Keep Your Fork

There was a young woman who had been diagnosed with a terminal illness and had been given three months to live. So as she was getting her things “in order”, she contacted her Pastor and had him come to her house to discuss certain aspects of her final wishes. She told him which songs she wanted sung at the service, what scriptures she would like read, and what outfit she wanted to be buried in.

Everything was in order and the Pastor was preparing to leave when the young woman suddenly remembered something very important to her. “There’s one more thing,” she said excitedly... “What’s that?” came the Pastor’s reply. “This is very important,” the young woman continued. “I want to be buried with a fork in my right hand.” The Pastor stood looking at the young woman, not knowing quite what to say. ‘That surprises you, doesn’t it?” the young women asked. “Well, to be honest, I’m puzzled by the request,” said the Pastor.

The young woman explained. “My grandmother once told me this story, and from that time on I have always tried to pass along its message to those I love and those who are in need of encouragement. In all my years of attending socials and dinners, I always remember that when the dishes of the main course were being cleared, someone would inevitably lean over and say, “Keep your fork.” It was my favorite part because I knew that something better was coming… Like velvety chocolate cake or deep dish apple pie. Something wonderful, and with substance! So, I just want people to see me there in that casket with a fork in my hand and I want them to wonder “What’s with the fork?” Then I want you to tell them: “Keep your fork…the best is yet to come.”

The Pastors eyes welled up with tears of joy as he hugged the young woman good-bye. He knew this would be one of the last times he would see her before her death. But he also knew that the young woman had a better grasp of heaven than he did. She had a better grasp of what heaven would be like than many people twice her age, with twice as much experience and knowledge. She KNEW that something better was coming.

At the funeral people were walking by the young woman’s casket and they saw the cloak she was wearing and the fork placed in her right hand. Over and over the Pastor heard the question, “What’s with the fork?” And over and over he smiled. During his message, the Pastor told people of the conversation he had with the young woman shortly before she died. He also told them about the fork and about what it symbolized to her. He told the people how he could not stop thinking about the fork and told them that they probably would not be able to stop thinking about it either. He was right. So the next time you reach down for your fork let it remind you, ever so gently, that the best is yet to come.

November, 2011

2011-10-31T06:41:00.000-07:00

November 1, 2011

RE: Monthly Letter

“Pasteur’s theory of germs is a ridiculous fiction. How do you think that these germs in the air can be numerous enough to develop into all those organic infusions?”
- Professor Pierre Pocket 1872

Walt Disney was fired as a newspaper editor because “he lacked imagination.” Thomas Edison was fired from his first two jobs for being “non productive.” Decca Records turned down the Beatles because, “we don’t like their sound and guitar groups are on their way out.”

As regular readers, you know that I have pounded the table that it is “all about jobs.” Watch the unemployment numbers drop and you’ll see the real estate market recover. Like many writers I would like to focus on the other “Jobs” for a moment. Steve Jobs’ philosophy was understanding the importance of putting the customers experience first. However, it was deeper than that he saw that the experience had real bearing on people’s lives. Technology didn’t have to be about people sitting behind a desk doing what’s generally thought of as “work.” It was teenagers trying to find new music, grandmothers browsing family photos or people wandering a strange neighborhood looking for a bagel shop. Jobs’ insight wasn’t in seeing that technology could help people do these things (which is obvious) but that in doing so the technology needed to get out of the way as much as possible. Tech is a window to content and services, nothing more. Hmmm….maybe it is time to think about real estate in this way.

I must say that as genius as Steve Jobs was, he has almost single handedly contributed to the largest negative absorption of commercial space in the history of real estate. Think about it, the iPod replaced Tower Records, Warehouse records, in fact records, tapes and CD’s. The iphone has replaced daytimers, cameras (infact probably Kodak), and the way we think about telephones. Computers and Internet have turned the retail world upside down (and emptied space) and the iPad is poised to finish off the bookstore and video store. Meanwhile, cloud computing has lessened the need for office space and laptops and iPads and iPhones allow workers to be productive from all corners of the world (as long as you’re connected to the internet.) This would all seem to be gloomy for real estate (maybe we should organize a march to Occupy Silicon Valley!) but just as human nature so misreads genius, as I illustrated in my opening, I am here to tell you that we all still have an inner need to see, be seen, do and be served. We are social beings It is when we realize this in context of our properties and tenants that we will prosper again. Our spaces and tenants need to be warm, friendly and inviting. Places that people want to go rather than sit in front of a computer or TV. This is what defines great real estate and the genius of great developers, investors and brokers.

I used to worry about the concept of what government did for me. But now I worry about what government is going to do to me! If you are still trying to figure out the whole budget, debt crisis and Super Committee, I thought I would give it to you as an analogy to my new diet. Now that I am 50, I thought I would look at various weight loss programs. I decided that the government deficit reduction program (GDRP) was the most palatable. I decided I have been eating poorly for 10 years and probably should lose 15 pounds. Most of us assume that is 15 pounds from what we weight now. However, under the GDRP weight reduction plan, I assume that I am going to eat badly for the next 10 years and gain 45 more pounds so I am going to lose 15 pounds relative to the 45 pound increase. So…I’ve got 30 pounds to still gain over the next decade! I love this plan. Cheers!

Dan Quayle once said, “Bank failures are caused by depositors who don’t deposit enough money to cover losses due to mismanagement.” Well, banks are slowly repairing and rebuilding themselves. They are starting to lend again but you still need to realize that there are still a lot of “bikini loans” out there (you know, those are the ones you can see but not touch!)

The International Council of Shopping Centers (ICSC) said it expects holiday sales to increase, the second consecutive increase following two down years in 2008 & 2009. Michael Niemira, ICSC’s Chief Economist says, “The sales trend points to a continued picture of unevenness.” Wal-Mart, meantime said low-income shoppers are having a harder time stretching their dollar than they did a year ago. As part of their response, they are bringing back layaway services for the holiday season.

This year we are going to experience four unusual dates: 1/1/11, 1/11/11, 11/1/11, 11/11/11, and that’s not all: Take the last two digits of the year you were born and the age you will be this year on December 31st and the result will add up to 111 for everyone!!! Also, this year October had 5 Sundays, 5 Mondays and 5 Saturdays. This happens only once every 823 years. These particular years are known as “moneybag years”. So whether you want to be #1 or this is a moneybags year for you, remember that it is persistence and attention to detail (virtues we at CDC Commercial try to avow) that is the genius in innovation and success. I hope you enjoy this month’s story.

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

Google executive Vic Gundotra offered up a memory of now-former Apple CEO Steve Jobs on his Google+ page.

The account gives us a bit of insight into just how hands-on Jobs has been over the years, during which he’s been accused of being a control freak and a visionary.

Gundrotra, a senior vice president of engineering who is overseeing the Google+ project, described a 2008 phone conversation and presented Jobs as a person who not only genius but also cared about details others may otherwise miss.

Here’s Gundotra’s full account, as written on his Google+ profile:

One Sunday morning, January 6th, 2008 I was attending religious services when my cell phone vibrated. I looked at the phone and noticed that my phone said “Caller ID unknown.” I choose to ignore.

After services, as I was walking to my car with my family, I checked my cell phone messages. The message was from Steve Jobs and said call me at home I have something urgent to discuss.”

Before I even reached my car, I called Steve Jobs back. I was responsible for all mobile applications at Google and dealing with Steve was one of the perks of my job.

“Hey Steve – this is Vic”, I said. “I’m sorry I didn’t answer your call earlier. I was in religious services and didn’t pick up.

Steve laughed. He said, “Vic, unless the Caller ID said “God”, you should never pick up during services.”

I laughed nervously. After all, while it was customary for Steve to call during the week upset about something to call on Sunday and ask me to call his home was unusual. I wondered what was so important?

“So Vic, we have an urgent issue, one that I need addressed right away. I’ve already assigned someone from Apple to fix this tomorrow” said Steve.

“I’ve been looking at the Google logo on the iPhone and I’m not happy with the icon. The second O in Google is the wrong shade of yellow. It’s just wrong and I’m going to have Greg fix it tomorrow. Is that okay with you?”

Of course this was okay with me. A few minutes later on that Sunday I received an email from Steve which directed me to work with Greg Christie to fix the icon.

Since I was 11 years old and fell in love with an Apple II, I have dozens of stories to tell about Apple products over the decades. Even when I worked for 15 years for Bill Gates at Microsoft, I had a huge admiration for Steve Jobs.

But in the end, when I think about leadership, passion and attention to detail, I think back to the call I received that morning in January. It was a lesson I’ll never forget. CEOs should care about details. Even shades of yellow.

To one of the greatest leaders I’ve ever met, my prayers and hopes are with you Steve.

October, 2011

2011-09-29T13:37:00.000-07:00

October 1, 2011

RE: Monthly Letter

In an attempt to be efficient, I am going to give you a sneak peak at an article I just wrote for a commercial real estate trade paper on the state of the San Diego Retail Market.

The lights may have gone out in San Diego on September 8th but the economy and the retail market continue to churn and march forward on the path to recovery. Countywide retail vacancy hovers at 5.5 percent according to CoStar Group, however, Shopping Centers sit at just below 8 percent.

Because of the last recession, tighter lending requirements, onerous governmental processes and the lack of developable land, San Diego’s retail market is not overbuilt. Certainly the economic malaise we are in has put stress on retailers big and small. An even bigger issue is the restructuring of the retail industry. Between Big Box Super retailers and internet sales, the demand for retail space has flattened. Just as our economy is retrenching so too are users of retail space. Service office users (doctors, lawyers, alternate healthcare, financial services and education) are moving out of office and into retail space offered at bargain rents but with better public exposure. Food uses continue to pop up taking advantage of the latest health trends or new ethnic cuisines.

New retail development in San Diego County is still scarce but the “green shoots” are starting to appear. Shea Properties is developing the Mercado Del Barrio in Barrio Logan anchored by Northgate Market plus an approximately 50,000 square feet of shops and service uses. Part of a mixed use redevelopment, the project is also to include ninety-two apartments and a community college. Additionally, Sunroad Enterprises has announced plans for a 500,000 square foot shopping center in Otay Mesa. This Big Box Project is expected to serve the eventual population of the Mesa but also provide for tens of thousands of consumers across the border.

At the North end of the County, the coastal market has held up with less vacancy and less rent declines than the inland markets. A tough economy and tighter immigration policies have contributed to higher unemployment and a shrinking population which translates to less deals and higher vacancies. There are a few bright spots such as two new hospitals under construction Palomar Hospital in Escondido and Kaiser Hospital in San Marcos. These users are sure to be job generators and economic stabilizers in the future. Stone Brewery continues to grow and is now the fourteenth largest craft brewer in the United States with plans for the addition of a boutique hotel and new brew pubs in North Park and Liberty Station near Lindberg Field airport. San Diego has become the Napa Valley of Craft beer brewing. Lexus of Escondido has opened a mega facility. The dealership sells cars, offers wedding and meeting venues, a coffee house, golf simulator, and now Vintanas an upscale restaurant from the Cohn Group.

The Big Box fallout from the Great Recession was quickly stemmed in San Diego by retailers seeking a foothold in the market. Most spaces were quickly taken by Best Buy, Dicks Sporting Goods, Ross and Sprouts. We are seeing the excess of small shop space caused by the economy and structural changes to the industry being slated for lease at lower rates to service/office or for redevelopment by tenants like Fresh & Easy and Big 5 Sporting Goods. Petco continues to seek sites but has launched a small store concept, Unleashed, to get into tighter more expensive markets and take advantage of redevelopment opportunities. Kahoot’s a pet store competitor continues to roll out its stores. The big banks, Chase, Wells Fargo and CITI are seeking sites and growing market share. Dollar Tree is trying to take advantage of low rents and hungry landlords to grow its foot print in the market. New food concepts are springing up. The burger wars are continuing. Besides the usual suspects, In-N-Out, Sonic, Smash Burgers and Five Guys all are seeking growth. Lots of new food concepts, sit down and fast food, are seeking growth throughout San Diego.

Things are still tough in the market. However, there is just too much good information out there and real estate in San Diego is in just too good of a shape to stay at these levels. The financial, technology, healthcare and education sectors are coming back and are the “emerging leaders. San Diego gained 20,100 nonfarm jobs from 2010 to 2011. The light is on at the end of the tunnel. It is time to work hard, be productive and pray for recovery. In the movie catch me if you can, the infamous con artist Frank Abagnale Jr (Leonardo DiCaprio), who collected cash passing himself off as an airline pilot, doctor and lawyer said when asked to say grace “Two little mice fell into a bucket of cream. The first mouse quickly gave up and drowned, but the second mouse, he struggled so hard that he eventually churned that cream into butter and he walked out. Amen.”

In keeping with the churned butter story above, I was pleased to hear Christopher Thornberg at Beacon Economics, confirm that things are dim, “but the chance of us shrinking back into another recession in 2011 is pretty close to zero percent.” The USD Real Estate index faltered in August mirroring the slow August that we saw at CDC. September has seen more activity but still not much closing. We’re doing our best to drag these deals across the finish line!

So keep on struggling as we figure out how to step out of this hole or... I hope you enjoy the story (sorry it is a repeat of 2007 but it is very fitting with the state of things and the mouse story above).

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

The Donkey Story

One day a farmer’s donkey fell down into a well. The animal cried piteously for hours as the farmer tried to figure out what to do. Finally he decided the animal was old, and the well needed to be covered up anyway; it just wasn’t worth it to retrieve the donkey. He invited all his neighbors to come over and help him. They each grabbed a shovel and began to shovel dirt into the well.

At first, the donkey realized what was happening and cried horribly. Then, to everyone’s amazement, he quieted down. A few shovel loads later, the farmer looked down the well, and was astonished at what he saw.

As every shovel of dirt hit his back, the donkey did something amazing. He would shake it off and take a step up. As the farmer’s neighbors continued to shovel dirt on top of the animal, he would shake it off and take a step up. Pretty soon, everyone was amazed, as the donkey stopped up over the edge of the well and trotted off.

The Moral:

Life is going to shovel dirt on you, all kinds of dirt. The trick to getting out of the well is to shake it off and take a step up. Each of our troubles is a stepping stone. We can get out of the deepest wells just by not stopping, never giving up! Shake it off and take a step up!

Ok, that’s enough of that B.S....The donkey later came back, caught the farmer out in the field and kicked the *#?* out of him. Then he went over to each of his neighbors’ farms and kicked the *#?* out of them too for helping.

The REAL Moral:

When you try to cover your ass, it always comes back to get you.

September, 2011

2011-09-01T06:56:00.000-07:00

September 1, 2011

RE: Monthly Letter

It may seem hard to believe but the kids are going back to school and football is in the air. Also, as hard as it is to believe amid S&P downgrades, Wall Street turmoil and financial troubles in Europe, the US economy is heading in the right direction, albeit slowly.

Football today requires its players to be athletic “all-rounders”, with excellent muscular endurance, so they can sprint, jump, block and tackle for the full 3 hours of game day. They are also required to have this strength and endurance to avoid injury. Gone are the days of training sessions consisting of little more than running laps, a few sprints followed by some basic ball drills. Todays game requires players to be high performance athletes-possessing strength, speed, power and stamina.

Just as in football, we need to be smarter, stronger and possess more stamina to get our economy and real estate markets working. And by working I mean making us money and dropping unemployment. We must innovate and sell (productivity) our way out of this slump. The main problem is not an economy on the ropes, but a weak recovery plagued by institutional gridlock, and changing expectations of whether U.S. policy makers can encourage job creation while managing debt and deficit levels.

Christopher Thornberg of Beacon Economics explains last months financial turmoil well; “the financial markets are shuddering because they weren’t expecting a slow recovery. They were expecting a fast recovery. What you are seeing now has been a correction.” In school you are taught that this is the reversion to the mean average (ie. slow upward trend). In football you start talking about it being a building year!

Lawrence Yun, the National Association of Realtors® economist provides some simplicity and clarity to the winning path. He says the United States 3% annual growth in GDP is due to the “simple math of a 1% rise in population and a 2% rise in worker productivity.” Overtime, a small boost in GDP growth - due either to faster population growth or increased worker productivity – could have a huge impact on national income, tax revenue and government debt. If GDP grew at 5% instead of 2%, Yun said, by 2040 the federal government could be netting $11.4 trillion in tax revenue instead of $4.8 trillion, without raising taxes – “more than plentiful to cover just about any government program pay off debt and then some.”

I hate to be the one to tell you this, but things may not be better next week or even the week after. But eventually they will get better. There is just too much good information out there and real estate in San Diego is in just too good of a shape to stay at these levels. The financial, technology, healthcare and education sectors are coming back and are “emerging leaders.” US retail sales rose in June and July. Worldwide, commercial real estate transactions rose 60%. There are less loan workouts and more liquidations as buyers return to the market and banks foreclose. On a very positive note, between July 2010 and July 2011 San Diego County gained 20,100 non- farm jobs! San Diego’s median home price in 2010 was $315,000 – 3 years ago you would have killed for a house at that price. I know everything has gone down but to keep this in perspective, why I say this is such a good deal, Louisville, KY has an average home price of $342,000.

Certainly this is a risky market but if you believe like me the light is still on at the end of the tunnel. This is a time for “athletic” investors to take on vacancy, renovate tired properties and snatch up assets outside of primary markets in order to reap larger profits from their investment dollars. Here are a few tips from the trenches.

1. Buy with Cash - To win deals, buyers with sufficient capital are acquiring with cash and then financing after closing or renovation.

2. Understand lender preferences – You have to understand where the deal fits into the lender universe.

3. Lock in rates – Mortgage rates are at historic lows. If your loan expires in next 12 months try to lock in now.

Whether it is competing like a football player or studying like a student these are historical times that we will look back upon and say; “I only wish I had…” It is important to prepare today so that tomorrow’s challenges can be opportunities rather than crisis.

Speaking of school, preparation and tomorrow’s challenges, I am going to give a shameless plug for my wife, Candy who does college counseling.. If you are trying to figure out what school for your kids or grandkids, what major, how to get in, do applications or what a FAFSA is, feel free to call her (858-254-2933) or email candy@candyzech.com She’s about half the price of the competition and the first visit is free.

We can’t predict the market but you can control how you react to it. Kinda like football. Hope you enjoy this months story.

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

What Would Happen If…

We Ran Our Football Teams As We Do Our Classrooms:

Everyone would have the right to equal playing time so that all could develop their athletic skills equally.

Cooperation would be more important than excellence. Competition would be frowned upon.

Since star athletes are already talented, they would not need special coaching or conditioning. They could help teach other athletes since “to teach something is really to learn it.”

We would “coach to the middle.”

We would strive to develop well-rounded athletes. Thus, the star quarterback would take a turn sitting on the bench as a trainer. The student of lower analytical skills would get a turn as quarterback. The out-of-shape student who hates physical activity would get the opportunity to play running back.

Coaches would be expected to be understanding when jobs, family trips or homework interfered with practice time by adapting game plans to accommodate much multiple interests.

Coaches would be assigned parking lot supervision duty immediately before and after games and during half-time. If athletes had questions about game plans, they could meet with coaches in the parking lot. Coaches would have to plan their plays before or during supervision duty.

Coaches could not demand too much of students lest they create stress or interfere with many other interests and priorities.

If the team had a losing season, new philosophies of coaching would be developed. Each new philosophy would discard all previous philosophies. It would require a two-hour training session and supply the coach with a pocket folder crammed with philosophy and objectives. Coaches could plan their strategies between supervision duties and games.

We Ran Our Classrooms As We Do Our Football Teams:

Teachers would walk into class enthused and fired up with the importance and relevance of what they were teaching.

Students would be in class because they wanted to learn and they would respect the teacher and put all their energy into the class. Class would be more important to them then their jobs or football practice.

Parents would jam the schools asking the teacher how to help their students excel.

Students wouldn’t dare miss class or skip doing homework lest they be dropped from the academic team.

Students would develop a sense of teamwork and cooperation fueled by their love of learning and challenging of each other. Students would take pride in their classes and demand that classmates give their best.

Students would clamor to be “student of the week” or make the honor roll. Other students, teachers and the community would enthusiastically and supportively be involved in student learning.

We would have rallies and bands and cheerleaders for National Merit Scholars and honor students, and they would not feel uncomfortable about receiving the attention because this would be every student’s dream.

Every night, the 10 o’clock news would devote a full 10 minute segment to education issues and highlights. The morning radio stations would compete for the education audience.

Newspapers would devote several pages (for a whole section) complete with pictures to academic activities.

We would demand excellence in the classroom and teach cooperation and patience on the playing field.

Our society would clamor to build and equip learning facilities because everybody would recognize the value of well –educated citizens to the business community.

August, 2011

2011-07-28T16:07:00.000-07:00

August 1, 2011

RE: Monthly Letter

Scientists are now learning that life is wiped out on earth about every 20 million years. Great…we will finally get the deficit paid off and we’ll all be wiped out! I heard one of the proposed budget cuts was for our representative to now play miniature golf! Speaking of golf and living forever, I will be turning 50 years old on the 9th and to celebrate I am going to play 50 holes of golf. It should make for a long frustrating day celebrated with family and good friends.

Last month I reported that we have seen an upturn. I still hold to this but as in other previous bumps we have to get and maintain momentum. This month we have seen a little flattening again. The USD index was down two tenths of a percentage point. Down for the first time in 27 months – but essentially flat. Unemployment in San Diego the single most significant number rose nearly 1 full percentage point in June to 10.4%, the highest mark for 2011. However, tech employment was up slightly. Merger and acquisitions activity in San Diego nearly tripled in the first quarter of 2011 over the same quarter last year. The number of patents granted rose sharply in San Diego. The growth of patents serves as a good indicator of the level and pace of innovation in the region (and future jobs and space requirements).

Just as a reminder, as things slowly pick up, we want to make it as easy as possible to make a deal. On our end, let me assure you we are hustling on deals “like our hair is on fire” . From the property perspective, we ask that the vacant spaces are light (lights all work, windows are not cracked and are clean), bright (space is unobstructed, electricity is on, lenses are clear – not yellow ) and white (walls clean and preferably fresh white paint – no holes or damage, ceiling tiles white and unstained). On owners end, turn documents (LOI’s and leases) around quickly. “Time kills all deals” . We are seeing deals fall out because owners take to long to respond or sign.

Maybe it is turning 50 or maybe it is the dog days of summer but this month I am going to keep the letter short and share some graphics with you rather than commentary.

First follow this link to Google Trends for Real Estate-Rentals. Granted this chart reflects residential rentals but search activity closely parallels that for commercial.

www.GoogleTrendsforRealEstateRentals.com

Second, below you will see my own proprietary chart which charts market activity. To be healthy we want to be over 250 and prefer to be over 300. As you will note breaking through that magical “250.” line is the start and stop that I have been reporting all year.

Outgoing FDIC Chair, Sheila Bair summed up the situation best when she said; “The fact that so many residential and commercial properties are currently underwater goes a long way to explaining the continuing weakness of the small business sector, which is so important to the creation of new jobs.” “Almost half of the liabilities of nonfarm noncorporate businesses are secured by real estate, both residential and commercial.”

“The large and persistent declines in real estate values in many areas of the country have hurt both the demand for small business products on the part of their Main Street customers as well as the ability of small businesses to borrow against the real estate collateral they own.”

Years ago I remember banks giving away toaster ovens when you opened an account. The problem seems to have occurred when they started loaning out money like it was an ATM machine. Soon Wal-mart will be giving away banks as your free gifts when you buy a toaster oven!

Lest you think I am crazy to play 50 holes of golf in one day, I still have my eye on the Guinness Book of World Records for the most golf in a year…enjoy this month’s story.

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

Richard Lewis set out to play 600 rounds of golf last year to get his name in the Guinness Book of World Records. The Guinness Book of World Records required Lewis to sign in and out with golf pros to prove he has completed each round.

The 64-year old Lewis walked every hold for an estimated 3500 miles of golf in 2010. “I’m addicted; what can I say?” said Lewis. Lewis, is a member of the Four Seasons Resort and Club Dallas at Las Colinas Four Seasons Club Manager Rob Cowan said, “Nobody in the 27-year history of the Four Seasons has gotten more out of his membership than Richard.”

Lewis not only wanted to play 600 rounds, he wanted to play them well. His average score during 2010 was 78.5. Now the question…did he make his goal of 600 rounds?...yes, he hit that mark on December 26th but played on a bit more…he closed out 2010 with a record of 611 rounds played. How many holes in one did he make?...none. Be he did close out 2010 with a birdie on the final hole.

July 1, 2011

2011-06-30T05:02:00.000-07:00

July 1, 2011

RE: Monthly Letter

“Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all.” -Dale Carnegie

Happy 4th of July! We are so fortunate to live in a country that allows us to be free to pursue our happiness. Despite these trying times and the choppiness of Democracy at work we should be so proud and confident of our young great nation!

During the early years of WWII Nazi submarines, operating in wolf packs, roamed the frigid waters of the North Atlantic with impunity sinking an alarming number of British military and merchant ships. Hitler was confident that his U-boats could blockade England and eventually starve the British people into submission.

In the summer of 1940, while the Battle of Britain was being played out over London, the Germans unmercifully sank over 300 British military and merchant ships. Prime Minister Winston Churchill, fearing the negative impact these devastating losses might have n the nation’s morale, ordered the information withheld from the public. In an effort to reduce the appalling number of causalities lost at sea, Churchill instructed the British Royal Navy to begin a study to determine what, if anything could be done to save more lives during sea rescue.

While interviewing the survivors an interesting discovery was made. To their complete astonishment, the researchers noted that the survival rate for the younger, presumably more physically fit sailors was remarkably lower when compared to the older shipmates. The study concluded that the older sailors had a significantly higher survival rate due to the fact that they had overcome more adversity and therefore, had developed greater confidence in being rescued than the younger, less experienced sailors.

History is replete with examples of people who felt like quitting but didn’t, only to realize incredible accomplishments. Just before those great accomplishments, you like would have heard them say, “I hate this!, This sucks! When will things turn around?!...” Well I am here to tell you that we have turned the corner. Although the press is talking a “double dip” we are not seeing it. We are definitely seeing continued activity but not much momentum.

As Gary London says, we are in the “search and rescue” phase with investors and tenants looking for bargains and opportunities while anticipating the economic upswing. I like to call it a “wobbling economy”, like a child who crawls then wobbles, then walks and eventually runs.

This summer we have three significant milestones to work through so we can keep “wobbling.” First, the end of QE2. The QE2 program is scheduled to end in June and the Fed says there won’t be a QE3. I think we are going to get a stealth QE3 by way of the Fed reinvesting in maturing bonds, release of the strategic petroleum reserve to keep oil prices down (oil is a proxy for interest rates), and possibly the lowering of the tax rates on corporate profits held overseas (over a trillion dollars!) Second, the battle over the debt ceiling. This showdown has as much to do about the ceiling and spending as it does about the Presidential elections in 2012. Republicans won’t compromise for fear of the Tea Party splintering off and doing what Ross Perot did in 1992, splitting the vote. Knowing this, the Democrats will likely try to force the hand. In the end we are likely to see tension and then compromise which will mean higher taxes and less spending (see below.) Also, don’t let it be lost on you that the Presidential election cycle is now in play. This likely means that we won’t see any meaningful fed rate increases until the first quarter of 2013. My advice – Go Long! Borrow all you can get from stingy lenders now.

The third milestone facing us this summer is the debt crisis in Europe. Lest you think this is not our problem, think again. European banks have about 90% of the exposure to places like Greece but through reinsurance, US banks have about 50% of the European banks exposure. And remember us taxpayers back up the US banks. So guess what? It may not be Greek to you but it may be 50% of you to the Greeks!

As mentioned above one sure thing is the government spending is going to decline. What and where will we likely see this outcome?

• Expect more private ownership of freeways and other means of transportation.
• Slower retail spending due to higher taxes, high unemployment, less
reductions in retail prices through imports (cheaper dollar.)
• Office space by government and agencies and funded non profits will decline.

To further President Clinton’s famous admonishment, “It’s the economy stupid”, I would tell the world (especially those in real estate), “It's about jobs!” Despite the decline in the outlook in the National economy, San Diego is up 11,400 jobs over last year. Unemployment is at 9.6 in May which is below the 10.1% it stood at last year at this time. Furthermore, the University of San Diego (USD) Index of leading economic indicators for San Diego has recorded its 22nd gain in 25 months (with the other 3 months unchanged.) We just need two ingredients to keep up this slow wobbly recovery – more jobs and more consumer confidence. A jobless recovery is a lie as much as saying that taxes are revenue enhancements. We have an unemployment crisis!

Also on the positive front, we have seen a continued positive upturn in the number of inbound sign calls since March (a good proxy for market activity.)

As we celebrate the birth of our Nation and the proverbial dollar, we pray for more employment and dollars in all of our pockets; I thought you would enjoy this story about our lowly Dollar Bill – Happy 4th!

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

The Dollar Bill

On the back side of the One Dollar bill, you will see two circles. Together, they comprise the Great Seal of the United States. The First Continental Congress requested that Benjamin Franklin and a group of men come up with a Seal. It took them four years to accomplish this task and another two years to get it approved.

If you look at the left-hand circle, you will see a Pyramid. Notice the face is lighted, and the western side is dark. This country was just beginning. We had not begun to explore the west or decided what we could do for Western Civilization. The Pyramid is uncapped, again signifying that we were not even close to being finished. Inside the capstone you have the all-seeing eye, an ancient symbol for divinity. It was Franklin's belief that one man couldn't do it alone, but a group of men, with the help of God, could do anything.

'IN GOD WE TRUST' is on this currency. The Latin above the pyramid, ANNUIT COEPTIS, means, 'God has favored our undertaking.' The Latin below the pyramid, NOVUS ORDO SECLORUM, means, 'a new order has begun.' At the base of the pyramid is the Roman Numeral for 1776. (MDCCLXXVI)

If you look at the right-hand circle, and check it carefully, you will learn that it is on every National Cemetery in the United States It is also on the Parade of Flags Walkway at the Bushnell, Florida National Cemetery, and is the centerpiece of most hero's monuments. Slightly modified, it is the seal of the President of the United States, and it is always visible whenever he speaks, yet very few people know what the symbols mean. The Bald Eagle was selected as a symbol for victory for two reasons: First, he is not afraid of a storm; he is strong, and he is smart enough to soar above it. Secondly, he wears no material crown. We had just broken from the King of England. Also, notice the shield is unsupported. This country can now stand on its own. At the top of that shield you have a white bar signifying congress, a unifying factor. We were coming together as one nation. In the Eagle's beak you will read, ' E PLURIBUS UNUM' meaning,'one from many.'

Above the Eagle, you have the thirteen stars, representing the thirteen original colonies, and any clouds of misunderstanding rolling away. Again, we were coming together as one. Notice what the Eagle holds in his talons. He holds an olive branch and arrows. This country wants peace, but we will never be afraid to fight to preserve peace. The Eagle always wants to face the olive branch, but in time of war, his gaze turns toward the arrows. They say that the number 13 is an unlucky number.

This is almost a worldwide belief. You will usually never (or seldom) see a room numbered 13, or any hotels or motels with a 13th floor. But think about this:

13 original colonies
13 signers of the Declaration of Independence
13 stripes on our flag
13 steps on the Pyramid
13 letters in Annuit Coeptis
13 letters in 'E Pluribus Unum
13 stars above the Eagle
13 bars on that shield
13 leaves on the olive branch
13 fruits, and if you look closely,
13 arrows

And finally, if you notice the arrangement of the 13 stars in the right-hand circle you will see that they are arranged as a Star of David. This was ordered by George Washington who, when he asked Hayim Solomon, a wealthy Philadelphia Jew, what he would like as a personal reward for his services to the Continental Army, Solomon said he wanted nothing for himself but that he would like something for his people. The Star of David was the result. Few people know that it was Solomon who saved the Army through his financial contributions but died a pauper.

June, 2011

2011-05-29T06:55:00.000-07:00

June 1, 2011

RE: Monthly Letter

What a crazy month. I just told someone that I am really busy not making money right now. The economy that we’re experiencing right now is definitely testing people. Unless you lived during the Great Depression, you’ve most likely never experienced an economy like this one. So the question becomes, “what do you have to do to get and stay on track despite what is going on with this current economy?”

The economic indices are finicky. Jobs are coming back but many are still moving overseas. This means we are not going to see the kind of growth seen in a typical recovery.

So you ask, why are we so busy and why aren’t we making any money? (my wife asks the same question) Well we are seeing an uptick in people looking and wanting to do business, however, despite what you would think it is harder to do a deal now then almost ever before. People are cautious and easily scared off. People expect a bargain and if they get resistance they bail out. Capital to do business is tight; lenders are stingy and very difficult. City governments and agencies are under staffed but also busy throwing up road blocks (3-6 months for simple plans is not unusual at the city or county.) These road blocks vary but they range from ADA enforcement, storm water runoff requirements (covered dumpster enclosures, etc…), sewer and water fees, parking surveys. Strict enforcement of seemingly ever code and rule. Besides the time there is a cost and frequently it is pushed back on owners – redo handicap ramps ($20K), redo bathroom ($10K), water and sewer impact fee ($2500+), the list goes on. As brokers in the market we are both educator and jungle guide. We are the CEO of the deal (Chief Everything Officer)! The good news is that we at CDC Commercial are good teachers and experienced guides. The challenge is having tenants and buyers with the stomach for the long trek. With that said, it would seem that with vacancies abundant and still a large contingent of unemployed entrepreneurial workers that it would be a brokers dream – but there is a caveat. The simple reason space isn’t being snapped up is the lack of financial reserves to grow a business and support a payroll. I see one of our ways out of this mess is to look at providing space to innovative start ups and visionaries in return for stock options, percentage leases and other profit sharing plans. If you think this fits you and your property let us know. (You can’t fault me for not being creative.). If you are not that creative then it may have to be lower rent, free rent, half rent, and TI’s. Know that if a tenant or buyer “has a pulse” we’re going to do everything we can to make that deal.

Not to harp on bad news this month but there is no question that heightened energy prices has and will continue to impact the recovery and tenants businesses. It will shutter some tenants, move many closer to their homes (good for most of North County owners), raise prices and squeeze rents for now. The rise in oil prices has effectively been a substitute for an interest rate increase. We are in the beginning of the inflation cycle and likely what will lift real estate values over the next 7 years. It won’t be like the 70’s but is and will be, none the less an inflation cycle. When the CEO of Wal-Mart, Bill Simon, says that inflation is going to be serious, citing cost increases that are coming at a rapid rate, it seems prudent to add a percentage point or so to inflation forecasts and pick your investments accordingly. Having just graduated my second son from college with a finance degree, I can tell you that the standard textbook says that commercial real estate offers a good hedge against inflation. It is time to get yourself in position to buy. REO’s are coming to market and Seller’s are motivated.

So with all that said what are you to do in these times? My advice is, stay educated, work hard to make and fight for deals, be entrepreneurial, cut costs and save money wherever you can and most of all, Be Happy!

Here are a few practical applications in the meantime.

• Get out and visit with lenders – know what they will loan on and what you can borrow. You’re going to want to be a buyer and now is the time to get yourself pre-qualified and ready to jump.

• Save money by re-doing windows that unemployed hooligans scratch or paint graffiti on instead of replacing.
www.wkrpservices.com Mike – 714-832-2146 x103

• Cut expenses down on oil and energy. Explore solar power for your building.
Baker Electric (Solar division) - Mark Johnson
760-802-6784

Being Happy is up to you but as I approach my 50th birthday this summer I thought you would enjoy the practical applications that Dave Barry suggests.

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

16 Things That Took Me 50 Years to Learn
by Dave Barry

1. You will never find anybody who can give you a clear and compelling reason why we observe daylight savings time.
2. You should never say anything to a woman that even remotely suggests you think she’s pregnant unless can see an actual baby emerging from her at that moment.
3. The most powerful force in the universe is gossip.
4. The one thing that unites all human beings, regardless of age, gender, religion, economic status or ethnic background, is that, deep down inside, we ALL believe that we are above average drivers.
5. There comes a time when you should stop expecting other people to make a big deal about your birthday. That time is age 11.
6. There is a very fine line between “hobby” and “mental illness.”
7. People who want to share their religious views with you almost never want you to share yours with them.
8. If you had to identify, in one word, the reason why the human race has not achieved, and never will achieve, its full potential, that word would be “meetings.”
9. The main accomplishment of almost all organized protests is to annoy people who are not in them.
10. If there really is a God who created the entire universe with all of its glories, and He decides to deliver a message to humanity, he WILL NOT use, as his messenger, a person on cable TV with a bad hairstyle.
11. You should not confuse your career with your life.
12. A person who is nice to you, but rude to the waiter, is not a nice person.
13. No matter what happens, somebody will find a way to take it too seriously.
14. When trouble arises and things look bad, there is always one individual who perceives a solution and is willing to take command. Very often, that individual is crazy.
15. Your friends love you, anyway.
16. Nobody cares if you can’t dance well. Just get up and dance.

May, 2011

2011-04-26T08:00:00.000-07:00

May 1, 2011

RE: Monthly Letter

Well as you are reading this I will be (or will have just finished) dragging my weary body across the finish line after 26.2 mile run along the coast highway in the Big Sur International Marathon. Having run a marathon before I can tell you I am going to feel like one old dog for a couple of days. But you know, old dogs are pretty smart and they live to play another day.

Making it through the turmoil of our economy and the real estate market qualifies us all as marathoners and surviving it will have us all as “old dogs.” But what does it take to make it to “old dog” status? Well…

• An Old Dog works harder. The dog is focused and organized so as to get the most of the day. Prioritize the highest return. Network – deals come from people.
• An Old Dog is an expert. An expert studies the nuts and bolts of the real estate deal but is also an expert in sale and marketing. Experts gain a reputation as an expert and this attracts business to them.
• An Old Dog takes risks. Old dogs step out of their comfort zones to be creative. People remember creative!
• An Old Dog likes a challenge. An old dog thinks “no” means “not now, but as soon as you convince me, I will say yes.”
• An Old Dog never, never, never gives up. Good markets are easy, bad markets are hard. Part of never giving up is holding on to your passion for what you do.

Take the risk and the challenge. Become an expert (or at least work with one like CDC Commercial.) Work harder than everyone else. You’ll find that the rewards are worth the effort as you drag your weary body across the finish line.

Well that finish line may be a moving target in this ever changing economy and market but the race is certainly on. The recovery may at times seem like a mirage in the dessert of foreclosures, unemployment, lowering rents and values, and lack of financing. Real estate has always been and always will be cyclical. Recent numbers – namely gains – offer us a much needed reminder that this downturn, too, shall pass.

• This time last year unemployment was at 10.2% versus 8.8% currently (Nationally – but remains at 10.1% in San Diego).
• Since the February 2010 employment trough roughly 1.7 million jobs have been added.
• Manufacturing capacity (use of facilities) is at 74.3% up from 69.7% last year.
• The S & P 500 has doubled from its March 2009 low.

The improvements we’re seeing might not be dramatic or even permanent just yet, but any step in the right direction is an important one toward restoring confidence among consumers and industry experts (Old Dogs.)

In the near term 2011 will be better than 2010, but only slightly. In years beyond, as new phases of the real estate cycle approach, we’ll see healthier trends establish themselves. As I look ahead, business is going to be leaner (more work done by less people) and we’ll be wiser (information access and experience.) It will take dedication and sometimes sacrifices but us “Old Dogs” will achieve our goals in real estate.

So how many Old Dogs does it take to screw in a 100 watt incandescent light bulb? After January, 2011 – zero! That’s because starting January of 2012 the 100 watt incandescent light is not being sold anymore. In its place will now be compact florescent bulbs (CFL.) These CFL’s produce 4 times the light, last 10 times longer according to Energy Star; saving us “$6 million in annual energy costs and prevent 9 billion pounds of greenhouse gas emission – equal to about 800,000 cars.” But two notes – don’t throw them in the trash (take to Home Depot or Wal-Mart for safe disposal) and if you still have an Easy Bake Oven keep a couple of old incandescent around because the CFL’s won’t create enough heat to bake your cookies.

Even if you don’t have an Easy Bake oven anymore you are still young at heart if you live in San Diego, according to a national survey released last month. RealAge.com released a list of the Top 10 Metropolitan Areas where healthy lifestyles make people two years physically younger than their chronological order, and San Diego was seventh on the list. I heard this week that the first person to live to the age of 200 has been born and is walking amongst us…Now that will be one Old Dog! I hope you Old Dogs enjoy this months story…

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

Old Dogs

A wealthy old Gentleman decides to go on a hunting safari in Africa, taking his faithful, elderly dog named Killer, along for the company.

One day the old dog starts chasing rabbits and before long, discovers that he's lost. Wandering about, he notices a leopard heading rapidly in his direction with the intention of having lunch.

The old dog thinks, "Oh, oh! I'm in deep doo-doo now!" Noticing some bones on the ground close by, he immediately settles down to chew on the bones with his back to the approaching cat. Just as the leopard is about to leap, the old dog exclaims loudly, "Boy, that was one delicious leopard! I wonder, if there are any more around here?"

Hearing this, the young leopard halts his attack in mid-strike, a look of terror comes over him and he slinks away into the trees. "Whew!", says the leopard, "That was close! That old dog nearly had me!"

Meanwhile, a monkey who had been watching the whole scene from a nearby tree, figures he can put this knowledge to good use and trade it for protection from the leopard. So, off he goes, but the old dog sees him heading after the leopard with great speed, and figures that something
must be up.

The monkey soon catches up with the leopard, spills the beans and strikes a deal for himself with the leopard.

The young leopard is furious at being made a fool of and says, "Here, monkey, hop on my back and see what's going to happen to that conniving canine!

Now, the old dog sees the leopard coming with the monkey on his back and thinks, "What am I going to do now?", but instead of running, the dog sits down with his back to his attackers, pretending he hasn't seen them yet, and just when they get close enough to hear, the old dog says... "Where's that damn monkey? I sent him off an hour ago to bring me another leopard!

Moral of this story...

Don't mess with the old dogs...age and skill will always overcome youth and treachery! BS and brilliance only come with age and experience.

April, 2011

2011-03-30T12:00:00.000-07:00

April 1, 2011

RE: Monthly Letter

Well as March Madness (basketball) winds to a close we now come face to face with the realities of April and tax time, balanced budgets, employment and recovery. If you think you are better than our politicians and are confident about cutting costs and or raising taxes, I think you will find the link below fascinating. It is on the New York Time website and is interactive so you can cut or tax or spend. You can even share your solutions with others (send it to your representative.)

You Balance the Federal Budget

We’ve gone from “Extend and Pretend” to “The Rubber Meets the Road.” Commercial note sales (performing & non performing), foreclosures, workouts, receiverships and bankruptcies (not necessarily in that order!) are now raining down on us. Unlike the residential meltdown, we’re not hearing about the commercial sector in the daily mainstream news. Warren Buffett in his recent annual letter to shareholders stated that, “Our elephant gun has been reloaded and my trigger finger is itchy.” Norm Miller a professor at the University of San Diego’s Burnham Moores Center, recently stated at the Universities Real Estate conference that “contrary to popular opinion, the commercial market should rebound quicker than residential, and now is an excellent time to purchase.” Furthermore, he said, “You’re probably never going to see a market like this in your life.” All of this makes me smile, because this kind of news validates that the recovery is in full of force. Now closer to home I will tell you that deal activity is getting better every day since the first of the year. The biggest problem is that it is getting better by inches and we are in a game of miles!

As I have stated many times, job growth is the key to our real estate recovery. Joblessness in San Diego has dipped to 10.1 percent (from 10.3). However, entrepreneurial activity is not well accounted for in these numbers. The Kauffman Index of Entrepreneurial Activity reached its highest point in 14 years in 2009 (these are unincorporated, non-employer based businesses; - or as we would call them “start ups” or “mom & pops”.) You see, it would appear that the jobless are employing themselves! Remember that half of all Fortune 500 companies were started during recessionary periods. This uptick in entrepreneurial activity is exciting but the key will be which if any develop into powerful economic forces capable of supporting a payroll and thus contributing to substantial job creation.

Lots of these entrepreneurs are working from home offices and those that are in commercial space are finding less need for space because of technology (no file cabinets, less trash, less desk space, more people per office.) I have found that ultimately most people move out from home offices and even with efficiencies people need commercial lease space and thus the cycle starts over again.

While on the subject of technology I have to tell you that now besides being mostly paperless we are not mostly in “the cloud.” Since Microsoft released Service Pack 1 for Windows 7 I think it is safe to make the move (if you haven’t already). I have and am very happy. With all of the technology out there to wade through, Windows, Androids, tablets, social network, servers and clouds it is important to have a good tech person. I have one such “entrepreneur” that I can recommend: Eric Hammond – SysRx 858-703-4605 eric@sysrx.com. I have yet to break something in the computer and software that he couldn’t fix.

As you prepare to pay your taxes and contemplate whether it is going to be, Heaven in 2011 or are we still knocking at the gates, I want you to remember that it is the superstars that have stayed in the business and worked through the turmoil and get to come out and shine in the end. That’s you, that’s me and the whole team at CDC. Hope you enjoy this month’s story…

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

Two Americans were shipwrecked on an island. Shortly after they arrived, one of them began screaming and yelling. “We’re going to die!” We have no food. No water. We’re going to die!”

The other calmly found a palm tree to lean against and relax. The first became even more frustrated by the other’s lack of concern. “Don’t you understand? We’re going to die!”

The second American, enjoying the shade of the palm tree responded, “You don’t understand, I’m a Superstar, I made $100,000 a month.”

In exasperation the first American asked, “What difference does that make? If we have no food or water, what good is your money? We’re going to die!”

The second responded, “You don’t get it. I’m an American who makes $100,000 a month. The IRS will find me.”

March, 2011

2011-03-02T09:37:00.000-08:00

March 1, 2011

RE: Monthly Letter

Wow what an interesting start to the New Year. Freedom explodes and the “buck stops here” mentality spreads. Middle Eastern leaders won’t leave their capitals and mid western legislators won’t show up in theirs, while the Federal Government is scheduled to run out of money on March 4th (they can join me and the rest of my tenants and owners!) Close to home shopping mall managers say they are noticing small positive signs of recovery such as longer waits at popular restaurants and more foot traffic despite a “thrifty mindset” among customers. As I reported last month we continue to see a pickup in activity and think that we have bottomed and turned the corner. The recovery is slow (and it is going to get slower with $4.00+ gas) but the momentum has started and it is not going to be stopped.

The shine is getting put back into commercial real estate. It is now being seen as an “opportunity.” It is seen as a higher yielding asset class that provides protection from potential rising interest rates and corresponding inflation.

Again what we are seeing on the street and in the field is that the last quarter of 2010 almost equaled the first three quarters combined. January saw a return to a normal beginning of the year activity. Holiday retail spending was up 5.5% and Ford has its largest profit in more than a decade. Once again there are favorable expectations in the market place. We’re getting wind back into our sails (or is that sales?)

As many of you will remember in past letters I likened our economic meltdown to a train wreck. Later using the analogy again I wrote that people were walking around like zombies after a wreck. I would now liken our situation to rehab (no not like Lindsay Lohan.) We are at the stage that we are hesitant to put our weight back on the broken legs. As we gain confidence and strength, however, we will again be walking and then running.

In our office we are seeing this happen in the form of small hesitant deals. Short terms, low rents, etc…but we are starting to see more and more tenants and buyers returning to test the waters. I liken this to the entry level buyers in the housing market who then trigger the move up buyer. The difference we see in the market since the first of the year is a little more decisiveness. In some cases it is to go out of business or downsize in others to finally grow or move but at least with more decisiveness we can begin to march forward.

Between $100+ a barrel oil and the green movement you should be evaluating the energy efficiency of your building. The White House is making a big push to retrofit building which will probably show up as tax breaks and specialty loans. At some point in time tenants and buyers
will offer a premium for energy efficient buildings just as they did decades ago for ones that offered HVAC. In the meantime closer to home most North county cities are clamping down (pardon the pun) the lid on requiring trash enclosures to be covered. This requirement is being imposed when new tenants go in for business licenses and permits (and costing Landlords money and time). The two reasons are to keep recyclable materials marketable and more importantly to avoid rain water runoff being filtered through the dumpster sending the toxins into the storm drain and ocean.

As you watch freedom and democracy pop up throughout the world be proud of what we have in our country. Look for a return on our success and recognize the importance of a buck… I hope you enjoy this month’s story.

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

On the back side of the One Dollar bill, you will see two circles. Together, they comprise the Great Seal of the United States.

The First Continental Congress requested that Benjamin Franklin and a group of men come up with a Seal. It took them four years to accomplish this task and another two years to get it approved.

If you look at the left-hand circle, you will see a Pyramid. Notice the face is lighted, and the western side is dark. This country was just beginning. We had not begun to explore the west or decided what we could do for Western Civilization. The Pyramid is uncapped, again signifying that we were not even close to being finished. Inside the capstone you have the all-seeing eye, an ancient symbol for divinity. It was Franklin's belief that one man couldn't do it alone, but a group of men, with the help of God, could do anything.

'IN GOD WE TRUST' is on this currency. The Latin above the pyramid, ANNUIT COEPTIS, means, 'God has favored our undertaking.' The Latin below the pyramid, NOVUS ORDO SECLORUM, means, 'a new order has begun.' At the base of the pyramid is the Roman Numeral for 1776. (MDCCLXXVI)

If you look at the right-hand circle, and check it carefully, you will learn that it is on every National Cemetery in the United States It is also on the Parade of Flags Walkway at the Bushnell, Florida National Cemetery, and is the centerpiece of most hero's monuments. Slightly modified, it is the seal of the President of the United States, and it is always visible whenever he speaks, yet very few people know what the symbols mean.

The Bald Eagle was selected as a symbol for victory for two reasons: First, he is not afraid of a storm; he is strong, and he is smart enough to soar above it. Secondly, he wears no material crown. We had just broken from the King of England. Also, notice the shield is unsupported. This country can now stand on its own. At the top of that shield you have a white bar signifying congress, a unifying factor. We were coming together as one nation. In the Eagle's beak you will read, ' E PLURIBUS UNUM' meaning,'one from many.'

Above the Eagle, you have the thirteen stars, representing the thirteen original colonies, and any clouds of misunderstanding rolling away. Again, we were coming together as one.

Notice what the Eagle holds in his talons. He holds an olive branch and arrows. This country wants peace, but we will never be afraid to fight to preserve peace. The Eagle always wants to face the olive branch, but in time of war, his gaze turns toward the arrows.

They say that the number 13 is an unlucky number. This is almost a worldwide belief. You will usually never (or seldom) see a room numbered 13, or any hotels or motels with a 13th floor. But think about this:

13 original colonies,
13 signers of the Declaration of Independence,
13 stripes on our flag,
13 steps on the Pyramid,
13 letters in, 'Annuit Coeptis,'
13 letters in 'E Pluribus Unum,'
13 stars above the Eagle,
13 bars on that shield,
13 leaves on the olive branch,
13 fruits, and if you look closely,
13 arrows.

And finally, if you notice the arrangement of the 13 stars in the right-hand circle you will see that they are arranged as a Star of David. This was ordered by George Washington who, when he asked Hayim Solomon, a wealthy Philadelphia Jew, what he would like as a personal reward for his services to the Continental Army, Solomon said he wanted nothing for himself but that he would like something for his people. The Star of David was the result. Few people know that it was Solomon who saved the Army through his financial contributions but died a pauper.

Monthly Letter and Gold Report, 2011

2011-01-27T13:41:00.000-08:00

January 26, 2011

RE: Monthly Letter and Gold Report

Well it is that time of year again. We clean out the closets, drawers and garage. We evaluate our investments and plan for the New Year. In my case, I also write The Gold Report, which helps me focus myself and give you some insight into how we see the New Year setting up.

The last couple of years have been a salesman’s nightmare. You see, the last few years have been filled with too many excuses for decision makers to put off buying/leasing decisions. For two years we have been hearing, “Call me back when …”. Unfortunately, like a client mine says, “a quick no is better than a long maybe.” What we are faced with is a backlog of maybes. However, I am glad to report and as you will read in The Gold Report Commercial Real Estate 2011…we’ve got an app for that, we believe we have turned the corner. That is reinforced by the fact that we are hearing less “maybes” and more “no’s” and some “yes’s.” And as another client of mine has recently said, “we’re going to have to sell our way out of this.” Let me reiterate all news is not good news but it appears that “the stall” is unfreezing and people are taking action. This action may be to go out of business, lay people off or seek new space but the action creates change and change creates a real estate market and makes us money if we are paying attention.

As you will read in the editorial of The Gold Report, today is “Whensday.” I hope you enjoy reading this year’s report as much as I do writing it for you. I and the entire team at CDC Commercial look forward to building our relationship with you on your Whensdays of 2011.

Down Load here; www.cdccommercial.com/GoldReport2011

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

January, 2011

2011-01-07T11:46:00.000-08:00

January 5, 2011

RE: Monthly Letter

2011 is the year of the rabbit according to the Chinese calendar. Just a short letter to let you know we are off to a quick start and hard at work in the New Year. The bounce has started and although it will be a long slow recovery it is underway. As far as the activity, this past December was one of the better I have seen in years. Still not great but better than it has been!

While we are all at work at CDC Commercial to get this year going with a bang, I am extra busy writing the 2011 Gold Report. You should be receiving this by the end of the month and we hope that it gives you insight to the year ahead. As troubling as the future may seem, I am excited that opportunities are starting to reveal themselves. We look forward to exploring these opportunities with you in the year ahead.

I wish you a healthy, happy and a mutually prosperous New Year! I am blessed to have such great friends and clients! Now lets get off to a jack rabbit start to 2011!

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

December, 2010

2010-12-01T11:43:00.000-08:00

December 1, 2010

RE: Monthly Letter

During the Holiday Season more than ever, our thoughts turn gratefully to those who have made our progress and success possible. It is with all sincerity and passion that we say simply but sincerely; Thank you and Best Wishes for the Holiday Season and a Happy New Year.

If you didn’t already know I and the whole team at CDC Commercial take on our business with PASSION! You may have heard me say that it is “passion that gets you out of bed in the morning, not money.” (and this year’s tough market really brings that point home!). I don’t care if they are an artist, a banker, a teacher, a waiter or whatever. We need to realize that everyone benefits when people are excited about what they do and how they deliver it to their customers, clients, neighbors and even strangers.

The great Martin Luther King, Jr. once gave a speech at a junior high school in Philadelphia in October, 1967 where he said the following:

“When you discover what you will be in your life, set out to do it as if God Almighty called you at this particular moment in history to do it. Don’t just set out to do a good job. Set out to do such a good job that the living, the dead or the unborn couldn’t do it any better. If it falls your lot to be a street sweeper, sweep streets like Michelangelo painted pictures, sweep streets like Beethoven composed music, sweep streets like Leontyne Price sings before the Metropolitan Opera. Sweep streets like Shakespeare wrote poetry. Sweep streets so well that all the hosts of heaven and earth will have to pause and say: Here lived a great street sweeper who swept his job well. If you can’t be a pine at the top of the hill, be a shrub in the valley. Be the best little shrub on the side of the hill.

I’ve been thinking what the ingredients are to create passion. See if you agree with these.

• P is for Pride. You should have pride in your product, company, team, city, neighborhood, service and most importantly in yourself.
• A is for Attitude. You can’t fake passion so you better start with a great attitude.
• S is for Skills. Are you knowledgeable, competent and confident in whatever it is that you do? Do you constantly seek to be better, taking classes, reading a book or blog and talking to those in your field who are better than you?
• S is for Sincerity. Can people see that you mean what you say, believe in what you do and who you surround yourself with and most importantly care about people? If they do, you’re passion will be visible.
• I is for Internally Motivated. I’ve always felt that inspiration comes from the outside but motivation must come from within. Do you have a fire burning inside you that makes you want to be the best you can be? If you fail, are you worried about those you may have let down or are you more concerned with letting yourself down? What does that “man in the mirror” say to you each day? Does it make you want to go back to bed or could you run to work on energy and enthusiasm?
• O is for “Oh My God!” That is what I want people to say when they do business with CDC Commercial and my team. “Oh my God, that was sooooo fun,” or “Oh my God, he gave me so many ideas to build my business or improve my property.” How many times have you experienced “Oh my God!” service? Isn’t it fun? Isn’t it memorable? You can’t wait to share your experience with a friend or family member.
• N is for “Next.” Passionate people are always looking ahead to their next opportunity, their next challenge, their next chance to have fun. If you are good at what you do and enjoy it, why would you want to wait to do it again?

So…How do you spell passion? What was the last experience you had that involved passionate services? (I hope it was with CDC Commercial!)
As in the past years, we get to the end of the year and once again realize it isn’t about what you own but who you know and I am happy that we have come to know each other this year and I hope that we both make an effort in the coming year to talk, do business and build our relationship.

Whether you have been doing business with me and CDC Commercial for the last 25 years or in the next 25 minutes, we’d like to thank you and express our appreciation to you for letting us share our passion with you.

I hope you enjoy this year’s Christmas Story and feel so moved.

Regards,

Don S. Zech
CDC Commercial, Inc.

The White Envelope…

It’s just a small white envelope stuck among the branches of our Christmas tree. No name, no identification, no inscription. It has peeked through the branches of our tree for the past 10 years or so.

It all began because my husband Mike hated Christmas – oh, not the true meaning of Christmas, but the commercial aspects of it – the overspending, the frantic running around at the last minute to get a tie for Uncle Harry and the dusting powder for Grandma – the gifts given in desperation because you couldn’t think of anything else.

Knowing he felt this way, I decided one year to bypass the usual shirts, sweaters, ties and so forth. I reached for something special just for Mike. The inspiration came in an unusual way. Our son Kevin, who was 12 that year, was wrestling at the junior level at the school he attended. Shortly before Christmas, there was a non-league match against a team sponsored by an inner-city church.

These youngsters, dressed in sneakers so ragged that shoestrings seemed to be the only thing holding them together, presented a sharp contrast to our boys in their spiffy blue and gold uniforms and sparkling new wrestling shoes. As the match began, I was alarmed to see that the other team was wrestling without headgear, a kind of light helmet designed to protect a wrestler’s ears. It was a luxury the ragtag team obviously could not afford.

Well, we ended up walloping them. We took every weight class. And as each of their boys got up from the mat, he swaggered around in his tatters with false bravado, a kind of street pride that couldn’t acknowledge defeat. Mike, seated beside me, shook his head sadly, “I wish just one of them could have won,” he said. “They have a lot of potential, but losing like this could take the heart right out of them.” Mike loved kids – all kids – and he knew them, having coached little league football, baseball, and lacrosse.

That’s when the idea for his present came. That afternoon, I went to a local sporting goods store and bought an assortment of wrestling headgear and shoes and sent them anonymously to the inner-city church. On Christmas Eve, I placed the envelope on the tree, the note inside telling Mike what I had done and that this was his gift from me. His smile was the brightest thing about Christmas that year and in succeeding years.

For each Christmas, I followed the tradition – one year sending a group of mentally handicapped youngsters to a hockey game, another year a check to a pair of elderly brothers whose home had burned to the ground the week before Christmas, and on and on. The envelope became the highlight of our Christmas. It was always the last thing opened on Christmas morning, and our children, ignoring their new toys, would stand with wide-eyed anticipation as their dad lifted the envelope from the tree to reveal its contents.

As the children grew, the toys gave way to more practical presents, but the envelope never lost its allure. The story doesn’t end there. You see we lost Mike last year due to dreaded cancer.

When Christmas rolled around, I was still so wrapped in grief that I barely got the tree up. But Christmas Even found me placing an envelope on the tree, and in the morning it was joined by three more. Each of our children, unbeknownst to the others, had placed an envelope on the tree for their dad. The tradition has grown and someday will expand even further with our grandchildren standing around the tree with wide-eyed anticipation watching as their fathers take down the envelope.

Mike’s spirit, like the Christmas spirit, will always be with us. May we all remember the reason for the season, and the true Christmas spirit this year and always.

If you would be interested in putting a “White Envelope” under your Christmas Tree, I would suggest that you visit the following link to Interfaith Services where you can see what a small gift can do right here in our community providing food and shelter to our most needy. http://www.interfaithservices.org/alternative_gifts.html.

Happy Holidays from the Team at CDC Commercial

Don, Candy, Nancy, Nick, Matt and Anne Marie

November, 2010

2010-10-27T08:22:00.000-07:00

November 1, 2010

RE: Monthly Letter

“Taxing the rich makes poor people poorer through fewer jobs created. What does government do with the higher taxes it collects: other than legitimately protecting our lives, liberty and property, etc., it spends millions studying how monkeys react to the effects of cocaine, why trucks go slow up hills, life styles of prostitutes and how to create a joke machine, etc.. But the joke’s on us, the taxpayers.”

- Fred Schnaubelt-Writer, Realtor® and Former SD Councilman.

As you head to the ballot box (unless you are amongst the 50% of voters that now vote by mail) remember that despite these trying times you live in the greatest country in the world and the envy of all. Many have died and even more have fought for your right to punch that chad. Exercise your right and be proud and thankful.

Twenty four months after the great credit crash it is time to ask where do we stand? First we are better than one year ago and certainly better than two years ago. More importantly, we are starting to see individuals and firms beginning to position themselves to take advantage of the opportunities in the market. If not that, we are seeing business owners/tenants/building owners capitulating and accepting market conditions and planning for a slow (ok, let’s call it “sleepwalk paced”) recovery. None the less, coming to these decisions is creating action and market activity. Not quick enough for me but we are seeing transaction activity picking up. Now I will say I look forward to the quality of tenants picking up. The joke in the office is that this is a sex (massage parlors), drugs (marijuana dispensaries) and rock n’ roll (blockbuster vacancies) recovery. In short we need to build some momentum. Doing deals right now is like pushing a snow ball uphill. If you stop pushing it stops moving! This is where the team at CDC Commercial goes to work. We are pushing everyone everywhere to keep deals together and closed. I often think it is like herding cats!

Unemployment continues to be the largest roadblock to a thriving recovery. IT IS ALL ABOUT JOBS! Roughly 25% of the nations leased office space is set to expire in 2011 or 2012. As leases comes up expect tenants to move to smaller spaces because of less employees and more use of space saving technology. At current low market rates, I do not recommend going out past 5 years before getting some kind of market rate adjustment.

San Diego placed 2nd in a recent Harris Poll asking people which city they’d like to live in or near. Although New York topped San Diego, it also earned the #1 spot for least popular City! I’ll give up a little extra theater, the winter snow and Eli Manning but I would like LaDainian Tomlinson back!

I am going to keep this month’s letter short because I know you already have so much to read on the ballot measures and candidate promises!

Though I didn’t get any grants for a joke machine, I can’t think of a better comedian of our time, and if he ran in 2012 I think I’d vote for him…I hope you enjoy this month’s story!

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

Cosby for President

I HAVE DECIDED TO BECOME A WRITE-IN CANDIDATE FOR PRESIDENT IN THE YEAR 2012.

HERE IS MY PLATFORM:

1. Any use of the phrase: “Press 1 for English” is immediately banned. English is the official language; speak it or wait outside of our borders until you can.
2. We will immediately go into a two year isolationist attitude in order to straighten out the greedy big business posture in this country. America will allow NO imports, and we’ll do no exports. We will use the policy, “If we ain’t got it, you don’t need it.” We’ll make it here and sell it here!
3. When imports are allowed, there will be a 100% import tax on it coming in here.
4. All retired military personnel will be required to man one of the many observation towers located on the southern border of the United States (six month tour.) They will be under strict orders not to fire on SOUTH BOUND aliens.
5. Social Security will immediately return to its original state. If you didn’t put nuttin in, you ain’t getting nuttin out. Neither the President nor any other politician will be able to touch it.
6. Welfare…- - Checks will be handed out on Fridays, at the end of the 40 hour school week, the successful completion of a urinalysis test for drugs, and passing grades.
7. Professional Athletes - - Steroids? The FIRST time you check positive, you’re banned from sports. . . for life!
8. Crime - - We will adopt the Turkish method, i.e., the first time you steal, you lose your right hand. There are no more, “life sentences.” If convicted of murder, you will be put to death by the same method you chose for your victim you killed: gun, knife, strangulation, etc.
9. One export of ours will be allowed: wheat; because the world needs to eat. However, a bushel of wheat will be the exact price e of a barrel of oil.
10. All foreign aid, using American taxpayer money, will immediately cease and the saved money, will help to pay off the national debt and, ultimately, lower taxes. When disasters occur around the world, we’ll ask The American People if they want to donate to a disaster fund, and each citizen can make the decision as to whether or not it’s a worthy cause.
11. The Pledge of Allegiance will be said every day at school and every day in Congress.
12. The National Anthem will be played at all appropriate ceremonies, sporting events, outings, etc.

My apology is offered if I’ve stepped on anyone’s toes. . . . Nevertheless. . . .

GOD BLESS AMERICA!

Sincerely,

Bill Cosby

October, 2010

2010-10-04T09:17:00.000-07:00

October 1, 2010

RE: Monthly Letter

“It’s tough to make predictions, especially about the future.”
~Yogi Berra

September saw some sombering memories. September 11th was a stark reminder of how fragile our freedom is and how it is constantly threatened. September 15th was the two year anniversary of the Lehman Brothers bankruptcy and weekend that our banking system faltered at the brink of a meltdown. The aftershocks continue today to affect our economy and personal lives as we struggle to regain our financial freedom. This year has been marked by a great deal of frustration; low-to-no deal flow, erratic economic news, skittish stock market, anemic consumer confidence, a ballooning Federal deficit and more of the same from the Washington crowd. With that as the backdrop, I realized I’m not in a slump, the economy is! Now let me tell you the best news; the economy is getting better…slowly. Now let me tell you some of what I expect; lots of political fireworks in the month ahead, higher than expected industry earnings reports, real estate transactions (leasing and sale) picking up, banks starting to disgorge REO’s and slowly begin lending again. However, expect deals to require more equity, less leverage, higher debt service coverage ratios. And of course the most important reason … the government told us so… not that it didn’t illicit a smirk from most of us, but the National Bureau of Economic Research (NBER) announced that the present recession ended and the recovery began June of 2009.

One other change to expect and adjust to: there is a proposed FASB rule (already existing in International accounting) that requires the entire obligation created by a lease to be put on the company balance sheet as a liability. It is likely that businesses may want to shorten leases to reduce liability. Also more businesses may prefer to buy instead of lease – since if the lease liability is greater (or close) than ownership makes sense again.

U.S. Commercial real estate yields (cap rates) are near their highest level relative to treasury bonds on record. This is typically considered a signal that it is time to buy property. Cap rates seem to be stabilizing and in some cases going back down. Unfortunately, I don’t see any signs of rent growth yet (and probably won’t until we see job growth or unemployment drop.) To get there we need a robust level of small and medium size business entrepreneurs who are deciding to move ahead with starting, purchasing or growing their businesses.

Having attending the Shopping Center Convention last month I will tell you it was as quiet as last year, however, this year there were deals happening and more optimism (and realism.).

As we take this recovery day by day and week by week, I thought I would pass on to you some negotiating strategies to help with existing tenants during these times. These are some bullet points from an article by attorney Anne Clinton of Cox, Coshe & Nicholson, LLP.

1. Review tenants financial statement – you need to know if it is worth helping them.
2. If they are in default – you don’t get rent relief.
3. Use a Confidentiality Agreement – be sure there is a financial penalty for violating the agreement.
4. Rent reductions are temporary and short term.
5. Get concessions – give up market rate option or exclusive rights or require sales reporting.
6. Recapture right – so long as tenant has rent reduction you have right to terminate space (or they pay full again)
7. Defer rent, don’t abate it.
8. Tenant t must be open and operate continuously.
9. Include a right for Landlord to show space.

By the time you finish reading this letter I will have finished one of my life long goals of running a triathlon (made tougher by my historically poor or lack of swimming skills.) What I have learned in this goal quest is to break the goal into bite size pieces, pursue it daily and relentlessly one stroke, one pedal or one step at a time.

Like our economy, when a baseball player is in a batting slump, he’ll do anything to change his luck. Things like superstitions (rabbits foot, not shaving, wearing the same underwear) to changing batting stance, to extra coaching. But the one thing that usually breaks the slump is extra batting practice – to regain the grove.

Believe me – we at CDC Commercial are taking it one step at a time, swinging the bat everyday and taking each week as it comes. I hope you enjoy this month’s story and enjoy the weeks ahead of you before you lose your marbles.

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

The older I get the more I enjoy Saturday mornings. Perhaps it's the quiet solitude that comes with being the first to rise, or maybe it's the unbounded joy of not having to be at work. A few weeks ago, I was shuffling toward the garage with a steaming cup of coffee in one hand and the morning paper in the other. What began as a typical Saturday morning turned into one of those lessons that life seems to hand you from time to time. Let me tell you about it.

I turned the dial up into the phone portion of the band on my ham radio in order to listen to a Saturday morning swap net. Along the way, I came across an older sounding chap, with a tremendous signal and a golden voice. You know the kind; he sounded like he should be in the broadcasting business. He was telling whomever he was talking with something about 'a thousand marbles.' I was intrigued and stopped to listen to what he had to say.

'Well, Tom, it sure sounds like you're busy with your job. I'm sure they pay you well but it's a shame you have to be away from home and your family so much. Hard to believe a young fellow should have to work sixty or seventy hours a week to make ends meet. It's too bad you missed your daughter's dance recital' he continued. 'Let me tell you something that has helped me keep my own priorities.' And that's when he began to explain his theory of a 'thousand marbles.' You see, I sat down one day and did a little arithmetic... The average person lives about seventy-five years. I know, some live more and some live less, but on average, folks live about seventy-five years.' 'Now then, I multiplied 75 times 52 and I came up with 3,900, which is the number of Saturdays that the average person has in their entire lifetime. Now, stick with me, Tom, I'm getting to the important part. It took me until I was fifty-five years old to think about all this in any detail', he went on, 'and by that time I had lived through over twenty-eight hundred Saturdays. I got to thinking that if I lived to be seventy-five, I only had about a thousand of them left to enjoy. So I went to a toy store and bought every single marble they had. I ended up having to visit three toy stores to round up 1,000 marbles. I took them home and put them inside a large, clear plastic container right here in the shack next to my gear.'

'Every Saturday since then, I have taken one marble out and thrown it away. I found that by watching the marbles diminish, I focused more on the really important things in life.' 'There is nothing like watching your time here on this earth run out to help get your priorities straight. Now let me tell you one last thing before I sign-off with you and take my lovely wife out for breakfast. This morning, I took the very last marble out of the container. I figure that if I make it until next Saturday then I have been given a little extra time. And the one thing we can all use is a little more time. 'It was nice to meet you Tom, I hope you spend more time with your family and I hope to meet you again here on the band. This is a 75 Year old Man, K9NZQ, clear and out. You could have heard a pin drop on the band when this fellow signed off. I guess he gave us all a lot to think about. I had planned to work on the antenna that morning, and then I was going to meet up with a few hams to work on the next club newsletter. Instead, I went upstairs and woke my wife up with a kiss... 'C'mon honey, I'm taking you and the kids to breakfast.' 'What brought this on' she asked with a smile.' 'Oh, nothing special, it's just been a long time since we spent a Saturday together with the kids. And hey, can we stop at a toy store while we're out? I need to buy some marbles.'

September 2010

2010-09-01T14:06:00.000-07:00

September 1, 2010

RE: Monthly Letter

If anything is plentiful in the market these days, it’s uncertainty. Conflicting economic data, fears of a double dip recession, vacancy, stimulus, bankruptcies. If you look at the broad economic data it is generally mixed to improving. There’s so much negative news being shoveled at us that it can be difficult to rise above it all and still determine your destiny. Today we have an economy and households riddled not just with debt but riddled with doubt! However, I look at our economy and this real estate market like playing the running game in football. You just take it down the field three or four yards at a time, and once in a while, if you’re lucky, someone throws a great pass and you pick up a lot of yardage!

Having driven one son to college in Nebraska (Go Husker’s) and having watched the other head back to Texas (Go Mustangs) I have a few observations;

• There are not enough hard hats at work. The only “hard hat” projects I saw were Federal road projects.
• Middle America seems less affected than Southern California and Las Vegas and Phoenix.
• Our agriculture belt (“bread basket”) is amazing and like nowhere in the world.
• The oil industry is creating opportunities galore in Texas, Colorado and even Bismarck, North Dakota. However, it is going to be green technology and green energy that “re-energizes” California (couldn’t believe the windmills and solar panels I saw popping up or on train and truck beds).
• Education and innovations is what has always set us apart (and will do so again) from the rest of the world.

All of this leads me to my contention that San Diego will recover sooner and faster than the rest of the nation. The reason? We have a large base of intelectual capital, a larger than normal number of small businesses and a natural limit on the supply of real estate. Thus demand will grow faster than supply making you a happy owner of real estate sooner than later. Oh and did I mention we have great weather ! In the meantime, as our economy re-educates and retools we will see stagnant real estate leasing and sale markets. It is all about jobs. We need to see job gains at 25-30,000 a month to indicate that we have turned off of the bottom.

Ok, time to strap on the pads to protect yourself and have a little chalk talk about game plans to play the games that are coming.

• Had a recent case where a new tenant’s contractor hadn’t gotten paid so he tried to lien the owner of the property (and CDC.) The owner was able to quickly produce a copy of the recorded “notice of non responsibility” and a photo of it in the window. The lien was immediately released. Every owner should post this notice after signing a lease if the tenant is having any work done. A copy can be downloaded from our website (www.cdccommercial.com) under the owner services tab.
• A VAT (Value Added Tax) seems like a neat idea but the proposed 15% tax applied to all purchases would reduce consumer spending. Areas most likely hit hardest; eating out, clothing, food and groceries, entertainment and vacation travel. On the other hand, the government could just spend less…
• Capital gains increases look to be going up the first of the year. If so, 1031 tax deferred exchanges will become more attractive again. There are a number of rules and time frames, between your accountant and CDC we should be able to help you fulfill my motto which is to: “Defer until you die, Refi to live.”
• HR 5943 proposes to provide temporary tax incentives to attract new equity for existing real estate projects. It would provide enhanced depreciation on new equity investment and deductions of losses that are not subject to passive loss limits. You’ll see more in the press as it gets closer to passing.
• Lower your risk exposure on lease deals with higher risk tenants by; increased security deposits, more advance rent, no TI’s, half rent instead of free rent, shorter terms with more options. Talk to your smart leasing broker!
• I believe it is now time for many of you to consider appealing your property tax assessment (especially if you bought in the last five years.) It is fairly easy to do and directions are on the County Tax Assessors website. You have until November 30th. Call or email me if you need a quick opinion on the merits.
• Many of you would also benefit from doing a cost segregation analysis. This breaks down your property into building, land and personal property and allows you to have more depreciation. Most of you probably think your CPA does this already but they probably haven’t since it takes an engineering analysis to perform the study. In order to qualify you must have $1Million in building value or more and you must be taxable (net operating loss means no tax to defer.) Properties can be new or old and the IRS allows you to correct back as far as 1987. If this is of interest to you, call me or call Harlan Friedman at 858-592-0659 x101.

Now that you’re ready and educated for the big game, it is time to turn off CNBC, Fox, CNN and turn on ESPN (or your other favorite football provider) and relax. As with any great crisis (opportunity?), the Great Recession has reminded us that the one ideal real estate has always been about, but somehow got buried underneath the deluge of offers and listings, is that it all comes down to people and relationships.

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

*Roger Staubauch – Still Captain America*

Last month my brother was sitting in first class on a flight from Dallas/Fort Worth to Colorado Springs when a couple boarded and sat in front of him. He immediately recognized the man as Roger Staubach the former quarterback of the Dallas Cowboys. He said he looked great, very fit.

They exchanged greetings and Staubach said he was headed to Colorado Springs for the inaugural Wounded Warrior games, a competition for injured members of the military.

After 60 to 70 percent of the plane had boarded, a female Army soldier who had lost her leg boarded. Staubach insisted she sit in his seat.

She said “no, thanks,” but he insisted and proceeded to go to the rear of the plane to take her middle seat in the far back. After a few minutes, the young woman got tears in her eyes and said she wanted to go to her seat and have Staubach return to his.

The flight attendant overheard, and, as the female soldier headed to retrieve Staubach, the attendant said she had a no-show and both could sit in first class.

The flight attendant returned with the female soldier, but instead of returning, Staubach sent a double amputee Army soldier to site in his seat in front. Staubach remained in coach the entire flight and disembarked last. My brother waited and asked for an autograph for my birthday; Staubach said certainly.

His autograph was a great gift, but the greater gift is knowing Roger Staubach is still Captain America.

~Written by Drew Werner of Addison, Texas. His letter to the Editor appeared in the June 10th, 2010 edition of the Dallas Morning News.

August 2010

2010-07-29T08:55:00.000-07:00

August 1, 2010

RE: Monthly Letter

At the end of last month the legendary basketball coach John Wooden passed away just months before his 100th birthday. Many of you may not know but the CDC Commercial pyramid logo and our business plan are all formed around coach Wooden’s famous pyramid of success. He was my childhood idol and it wasn’t just because of the 10 NCAA Championships, 88 game winning streak or four undefeated (30-0) seasons. No, it was because of the man he was and what he professed. He professed fundamentals first and everything else will follow. Besides his pyramid of success he left us with many a great quote. A couple of appropriate one for this month’s letter and our place in time are;

“Learn as if you were going to live forever. Live as if you were going to die tomorrow.”

and

“Be quick – but don’t hurry!”

With 2010 halfway over, the San Diego real estate market holds opportunities and pitfalls. The general mood is becoming cautiously optimistic as consumer confidence inches up. People want to believe it’s over and that we are on a solid recovery cycle. Many of the vacated national retailer spaces have been re-tenanted. CoStar reports that office markets have reached bottom (but could take two or more years to get below double digit vacancy rates.) Kyser Center for Economic Research reports that growth in 2010 will come from heath care, service industries, and private education with growth in 2011 coming from construction, retail, science and tech and manufacturing. Retailers are starting to move again – sandwich shops (Subway, Quiznos, Jersey Mikes), Dollar Stores (Dollar Tree, 99 Cent Only, Family Dollar), Pharmacy (Walgreens & CVS) and small retailers (Cartridge World, Edible Arrangements and Game Stop.)

So with all of this good news what’s the problem you ask? The big problem is the same one we have always had – job creation. Hoping that the end of the recession will fix things isn’t going to work. Now that we’re not as distracted by more urgent crisises, it’s time to come up with some solutions.

I recently read Thomas Friendmans (The World is Flat Fame) new book; Hot, Flat and Crowded. Although I am not as pessimistic as him on some things (nor as liberal as him on others), I do strongly believe that it will be a green revolution that will renew America and propel us into the next boom. This new green revolution is not going to come from the environmental left but instead from the green (cash) hugging right. In the book he quotes John Gardner describing our challenges as, “a series of great opportunities disguised as insoluble problems.” The challenge we face as Americans is that if we want to keep raising our standard of living, we can either work twice as hard, like the Chinese, or innovate twice as fast. Jeff Wacker of EDS likes to say: “The future is with us, it’s just not widely distributed yet.” If you’d like a glimpse of the future I’d recommend reading Hot, Flat and Crowded.
In my own attempt to be innovative and to share with you a great (if not the best I’ve seen) metric of the real estate market, I encourage you to click frequently on this link (www.cdccommercial/com/googleindex) or go to our website news and indexes tab and click on the Google Index. This is a raw measure of the searches going on for real estate and related searches. It tracks incredibly well with all of my other tracking metrics and gives a great view of where we’ve been and maybe where we are heading.

In the meantime if you would like to see what a commercial real estate recovery looks like, read on;

This is the third downturn I’ve been through in commercial real estate brokerage since I began my career 25 years ago.

A major problem right now for brokers is owners are still being unrealistic in their asking prices in many areas, but that’s going to be changing. And as this changes more sale transactions will begin to occur for smart brokers and buyers.

Here’s what I’ve determined are the 4 stages a market typically goes through when readjusting after a very hot market, indicated by what property owners are often saying to me at each of the 4 different stages:

Stage 1

You’ve wrong about the market. My property’s worth more than you’re telling me it’s worth.”

Stage 2

OK, I agree that the market has changed. But I still won’t sell my property unless you can get me more for it than what other people have already offered me for it.”

Stage 3

“We need to sell this property. Where do we need to price it in order to unload it?”

Stage 4

“I don’t think we’re ever going to see another great real estate market again.”

And Stage 4, of course, represents when we’ve probably hit the bottom of the market and it’s the best time to begin buying properties again.

Well the fear phase of the recession is almost over and the greed phase is starting. I have to tell you, these are trying times but I am very proud of the effort and hustle of my whole team. I am frequently reminded of Coach Wooden’s quote that sits atop his pyramid; “Be at your best when your best is needed. Enjoyment of a difficult challenge.”

I also hope you enjoy the more humorous paraphrase below.

Regards,

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

EFFORT

Ever wonder about those people who say they are giving more than 100%?
We have all been to those meetings where someone wants over 100%. How about achieving 103%? Here’s a little math that might prove helpful.

What makes life 100%?

If: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Is presented as:

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Then:

H A R D W O R K
8 1 18 4 23 15 18 11 = 98%

K N O W L E D G E
11 14 15 23 12 4 7 5 = 96%

But,

A T T I T U D E
1 20 20 9 20 21 4 5 = 100%

And,

B U L L S H I T
2 21 12 12 19 8 9 20 = 103%

So, it stands to reason that hard work and knowledge will get you close,
Attitude will get you there, and bullshit will put you over the top.

July 1, 2010

2010-07-07T11:12:00.000-07:00

What started out as a celebration to mark our young nation’s independence from England more than 200 years ago, has evolved into a national holiday that celebrates the American Spirit and powerful leadership in the world. We were founded on the principles of equality, religion, tolerance and opportunity. These beliefs have been challenged many times over the years, but have always been defended by men and women willing to protect these principles, sometimes by making the ultimate sacrifice. While you gather with friends and family around the barbeque this 4^th of July, take a moment to reflect and be thankful for the freedom we have and those that have and are standing in harms way to give it to us.

Every day I work hard to keep a pulse on the market and provide my clients with insightful and interesting perspectives on the real estate industry. However, I must admit that this month I am exasperated. I am not sure whether I should be up or down, pro or con, here or there. This market is befuddling! However, one thing is clear, there will be an investment play ahead in the fall out of this very confusing market. I am afraid we are much like the recent iconic Wimbledon Tennis match, going days looking for a winner.

Welcome to Summer! A time of warmer weather calling us to open our windows and welcoming all things fresh – new ideas, better plans, simpler life strategies, anything that makes our days easier and more enjoyable. From my end we are making a number of technology upgrades – please be patient with us for the next 30 days – changing phones, voicemail systems, cell phones, email providers and to some of the ways we handle our paperless system (Technology is supposed to lead a recovery so we are doing our share.)

I am also pleased to announce that we are bringing in another recent USD graduate, Matt Orth to start training and eventually becoming a broker. In the meantime he will be working hard cold calling and working on marketing our properties to help find those elusive tenants. Matt has been a family friend for years and I look forward to his success (besides I am doing my share to lead the recovery by lowering unemployment.)

As we wait for what Sam Zell calls, “Come clean by 2013”, we must maintain a focus and sense of urgency to get the deals done that we can. I am fond of telling those around me “you have to work as if your hair is on fire.” Deals are not as easy. The vision of the future is not so clear, but the second half of this year may have us perched on the doorstep of recovery. The USD economic index remains positive the NREI investor sentiment index has turned positive. The National Association of Realtors reports that U.S. Commercial values could start to recover next year, but with values declining and vacancy rising through year end.

The key to recovery is job growth. High unemployment fuels the foreclosure cycle. All my sources say that the foreclosure pipeline is still full. If we don’t see a recovering job market there won’t be buyers for the new inventory coming on the market.

A couple of items closer to home. Because it has come up in a few cases lately, let me warn you that you should not approve tenants putting up wallpaper. The cost of replacing wallpapered walls is exhorbadent and owners get stuck with the cost at re-tenanting time. Now time for me to ask for your help. We are working to spread our net to capture those illusive tenants and I need your help. If your tenants need a second location, your golf buddy needs to relocate or downsize or your sister in law wants to open a yogurt shop – please – please – please let us know. We’d love to pay you a referral, buy you wine or send you on vacation. Finding tenants is like dating – the more you ask the more dates you get! We’re out asking all day long on your behalf but if everybody starts asking we can all “share the wealth” and mutually benefit.

I want to tell you about my work on the Board of Directors at Interfaith Community Services. Right now we’re engaged in a critical capital campaign. With the economic crisis, as a service agency helping the poorest of the poor Interfaith has been challenged from two ends . . . substantially increased demand for assistance, and reduced income from all sources. We aim to pay off important mortgages, and free up approx. $30,000 per month for direct services. This is “the gift that keeps on giving!” We have raised enough funds to retire all but the last remaining mortgage, held on our Veterans Housing project in Oceanside, which provides transitional housing and comprehensive supportive services for 72 men and women. This is a tremendously worthy program, which is so timely for veterans in dire need returning from Iraq and Afghanistan. Too many returning veterans exit the military without transferrable skill-sets, often suffering from Post Traumatic Stress Disorder, and almost always having served multiple deployments in a theater of war. These young soldiers are becoming homeless and hopeless, but when they turn to Interfaith they are receiving the empowering help they need to rebuild their lives.

This capital campaign is blessed by matching opportunities – dollar for dollar. It is a tremendous benefit for those who can help us meet this goal! Also, please check out this link to a video created by students from Cal State San Marcos, about our Veterans Housing programs: http://www.youtube.com/watch?v=rhbvbmS_yGY

Can you guide us to potential sources of support for this campaign? Every bit will help. “You can even donate online or just read more about what we’re doing at:
http://www.interfaithservices.org/neighbors.html.

Thanks for your help! Thanks for your support and trust in CDC Commercial and my team in these trying times. I hope you enjoy this months story and may God Bless America!

Regards,

Don S. Zech

CDC Commercial, Inc.

Real Estate Services

The daughter of a Soldier

While I was in the airport, returning home, I heard several people behind me beginning to clap and cheer. I immediately turned around and witnessed one of the greatest acts of patriotism I have ever seen. Moving through the terminal was a group of soldiers in their camo's as they began heading to their gate everyone (well almost everyone) was abruptly to their feet with their hands waving and cheering. When I saw the soldiers, probably 30-40 of them, being applauded and cheered for, it hit me. I'm not alone. I'm not the only red blooded American who still loves this country and supports our troops and their families.

Of course I immediately stopped and began clapping for these young unsung heroes who are putting their lives on the line everyday for us so we can go to school, work and home without fear or reprisal. Just when I thought I couldn’t be more proud of my country or of our service men and women a young girl, not more than 6 or 7 years old, ran up to one of the male soldiers. He kneeled down and said "hi," the little girl then asked him if he would give something to her daddy for her. The young soldier, he didn't look any older than maybe 22 years old himself, said he would try and what did she want to give to her daddy. Then suddenly the little girl grabbed the neck of this soldier, gave him the biggest hug she could muster and then kissed him on the cheek.

The mother of the little girl, who said her daughter's name, was Courtney, told the young soldier that her husband was a Marine and had been in Iraq for 11 months now. As the mom was explaining how much her daughter, Courtney, missed her father, the young soldier began to tear
up. When this temporarily single mom was done explaining her situation, all of the soldiers huddled together for a brief second. Then one of the other servicemen pulled out a military looking walkie-talkie. They started playing with the device and talking back and forth on it. After
about 10-15 seconds of this, the young soldier walked back over to Courtney, bent down and said this to her, "I spoke to your daddy and he told me to give this to you." He then hugged this little girl that he had just met and gave her a kiss on the cheek. He finished by saying "your daddy told me to tell you that he loves you more than anything and he is coming home very soon."

The mom at this point was crying almost uncontrollably and as the young soldier stood to his feet he saluted Courtney and her mom. As the soldiers began to leave, heading towards their gate,
people resumed their applause. As I stood there applauding and looked around, there were very few dry eyes, including my own. We need to remember everyday all of our soldiers and their families and thank God for them and their sacrifices. At the end of the day, it's good to be an American.

June 2010

2010-06-13T08:59:00.000-07:00

June 1, 2010

RE: Monthly Letter

Dear Friend;

"In general the art of government consists of taking as much money as possible from one party of the citizens to give to the other." - Voltaire (1764)

As I toil through my day I am encouraged by the headlines that scoot across my desk:

“It won't feel like a classic recovery”
“Stirrings of life”
“Lenders make guarded moves”
“Inflection point”
“County may lead rental market rebound”

As I intimated in last month's letter, when you are up to your ass in alligators, it is hard to remember that you were there to drain the swamp! The University of San Diego (USD) Index of Leading Economic Indicators continues to rise (13 straight months now –but employment up for the last 3 months). A statement released by USD in early May states that if the local economy did not bottom out at the end of 2009, it likely did in the first part of 2010.

Other signs of economic recovery in the making are:

Housing starts – up
Retail sales – up
Consumer sentiment – up
Industrial production – up
Empire state manufacturing survey – up

With the “Great Recession” starting to recede, opportunities for commercial real estate investors will begin to surface. While the recession might be technically over, the sheer magnitude of troubled assets and loans that have yet to be recycled through the economy is enormous. As a result, full economic recovery, along with normalization at the capital markets, may well be a few years away. Right now, there is too much equity capital chasing too few deals. As we stated in our Gold Report this year, look for a strengthening recovery in the second half of the year and look for the next year or two to be filled with “work outs” as owners, lenders and the government restructure, recapitalize and redistribute income assets and debt.

The Euro crisis is rattling markets around the world, but here in the U.S. It means cheaper loans, lower gas prices and perhaps good news for investors. However, in the long run it is a message to get our “house in order”. Deflation is a very serious risk, but inflation is a greater likelihood. I expect the central banks and governments of the world to take the path of least resistance which will be to monetize the public sector deficits. In laymen’s terms, the Fed will print money to buy Treasuries. Printing more money will inflate the dollar. Modest inflation, combined with higher taxes will be the medicine of choice.

Why hasn't inflation occurred yet? Although a lot of money has technically been created, much of it so far is not being used. Most of it is sitting in “excess reserves” that banks keep on deposit with the Fed. This is “high power” money because if the banks loan it out it has a multiplying effect on the money supply. For now, however; most of it is sitting idle on deposit with the Fed.

Speaking of taxes, on January 1, 2011, the capital gains tax rate will revert back to the former 20 percent rate. Beginning in 2013, the National Health Care Reform Legislation recently passed, will impose a new 3.8 percent tax on certain investment income. In general, the new tax will apply to investment income that is subject to income tax, which includes capital gains (best to discuss with your accountant).

Now, how and why does this effect your property and your tenants (new or existing)? Let me tell you, these issues cuts to the core of tenant’s decision structure. Tenants are still pretty frozen because of uncertainties in the economy, concerns of new legislation affecting their business, fear of higher taxes and finally, inability to obtain that money sitting in the banks reserve accounts at the Fed.

Even in the slow economy, people are still going out shopping and using office services, they are just spending less and being more needs and value driven than ever before. So look over your shoulder at the government (remember they are here to help – as this month's story will attest). Watch for a sluggish recovery that has begun, expect moderate inflation and higher taxes. The most important number to watch as a pre-cursor to when things will be better for commercial real estate is when unemployment drops (and the USD index says that has started).

After more than 25 years in this game, I realize that, after all is said and done, development will reignite, alternative investment managers will emerge and transactions will return, fueling the brokerage business – not to mention all sorts of new finance products to fuel the recovery. Now that I think about it, I feel much better knowing that this is just another cycle and the bust will be followed by another boom.

Regards,

Don

Don S. Zech

CDC Commercial, Inc.

Real Estate Services

A Cowboy Named Bud

A cowboy named Bud was overseeing his herd in a remote mountainous pasture in California when suddenly a brand new BMW advanced out of a dust cloud towards him.

The driver, a young man in an Armani suit, Gucci shoes, Ray Ban sunglasses and YSL tie, leans out the window and asks the cowboy, “If I tell you exactly how many cows and calves you have in your heard, will you give me a calf?”

Bud looks at the man, obviously a yuppie, then looks at his peacefully grazing herd and calmly answers, “Sure, why not?”

The yuppie parks his car, whips out his Dell Net book computer, connects it to his AT&T iPhone G4, and surfs to a NASA page on the Internet, where he calls up a GPS satellite to get an exact fix on his location which he then feeds to another NASA satellite that scans the area in an ultra-high resolution photo.

The young man then opens the digital photo in Adobe Photoshop and exports it to an image processing facility in Hamburg, Germany. Within seconds, he receives an email on his iPhone that the image has been processed and the data stored. He then accesses a MS-SQL database through an Excel spreadsheet in Google Apps with email on his iPhone and after a few minutes receives a response.

Finally, he prints out a full-color, 150 page report on his hi-Tech Miniaturized HP LaserJet printer and finally turns to the cowboy and says, “You have exactly 1,586 cows and calves.”

“That's right. Well, I guess you can take one of my calves.”, says Bud.

He watches the young man select one of the animals and looks on amused as the young man stuffs it into the trunk of his car. Then Bud says to the young man, “Hey, if I can tell you exactly what your business is, will you give me back my calf?”

The young man thinks about it for a second and says, “Okay, why not?”

“You're a Congressman for the U.S. Government.”, says Bud.

“Wow! That's correct”, says the yuppie, “but, how did you guess that?”

“No guessing required.”, answered the cowboy. “You showed up here even though nobody called you. You want to get paid for an answer I already knew, to a question I never asked. You tried to show me how much smarter than me you are, and you don't know a thing about cows...this is a herd of sheep...”

“Now give me back my dog.”

- Author Unknown

May 2010

2010-05-13T08:58:00.000-07:00

May 3, 2010

RE: Monthly Letter

Dear Clients:

"Reality, and sanity, lie on the thin line between denial (not seeing what is there) and paranoia (seeing what is not there)." - Author Unknown

When you wake up in the morning, do you dread what is coming your way for the day or are you excited about the adventure that awaits? This is an important question because it determines your quality of life experience and the results you see for your efforts.

Let me share something personal about myself. I am what could best be described as a "pragmatic optimist". This means I'm very optimistic about possibilities, yet have enough life experience to know that "stuff" happens, which can get in the way of my goals and dreams.

And, like many people, I have to sometimes fight the urge to feel dread about all that "stuff". Minutes after celebrating having spent 25 years in commercial real estate, it seems as if I hit a big down draft or black cloud...starting with a fender bender, the flu, a client not paying a commission, a few big deals going south, legal hassles, the dog having a siezure and lastly, losing our Administrative Assistant of two years. If my life were a video game, I would have pushed the reset button this month. Instead, I picked up the pieces and plugged away. Now if you think about it, dread is just fear about not being able to handle what's coming...yet in my entire life (as I suspect with yours as well), there was never a time, not even once, when we couldn't handle what life dished out.

Well, the rubber is starting to meet the road. We are coming to the end of the "extend and pretend" period. We're not hearing a lot in the daily news, but the volume of commercial defaults is starting to overwhelm the system. So far, it is not following traditional systems. Banks are trying hard to not admit to the bad loans and instead sell the paper in pools. The buyers of these pools are then doing work outs with borrowers, foreclosing on them or selling off the pieces. On the other hand, the FDIC is taking a participatory approach. They are selling partnerships in their portfolio, retaining a 60% share to participate in the anticipated upside when prices begin to rise again.

Now that you can see the government is your speculative partner in the property market, you should also know that they are fast becoming your property partner. California has recently adopted CAB 1103, which will phase in between 2011 and 2013, to require all commercial property owners to have an energy star rating for their property. This rating will likely be posted and will be required to be disclosed on sale, refinance or lease to a single building tenant. You may say, "but I have a triple net lease and my tenants have their own meter"...well, the state says, "too bad." You will need to have your tenants disclose their utility bills, number of appliances like computers, etc... I'll have more on this towards the year end. I thought "green" leasing was a commission - guess I was wrong!

Speaking of "green", in February a 60 Minutes episode highlighted a new Silicone Valley Company, Bloom Energy, that has figured out a way to make an inexpensive compact fuel cell so efficient that a box the size of a residential washer and dryer could take you off of the grid for as low as $3000. Google, Wal-Mart and EBay are already customers. Talk about a green job's boost to the economy...this is one of those innovations that could be a game changer and help us out of the current recession. Let's hope anyway...

The general media is reporting a bounce in the economy, car and home sales are up and the stock market is indicating a recovery. Now that "pragmatic optimist" in me says, "pass on the good news to all", but we're not seeing it yet on the leasing and sales front. In bound call activity is 10% lower than last March. Deals are smaller, shorter term and lower rent, but we are seeing a few more deals getting done.

It is time to wake up and see the vision, hear the hope and put together realistic plans. A hopeful vision is a gift. It helps us see a better world. Our desires are again deeply felt. We are shaken out of our complacency, and then we may know the next right thing to do. It might be to call your senator, protest or pray, but it might also be to just do what's right in front of us...like do the laundry, walk the dog or just wash the windows. I hope you enjoy the story below.

Regards,

Don

Don S. Zech

CDC Commercial, Inc.

Real Estate Services

The Window Through Which We Look

A young couple moves into a new neighborhood.
The next morning while they are eating breakfast, the young
woman sees her neighbor hanging the wash outside.
"That laundry is not very clean" she said.
"She doesn't know how to wash correctly.
Perhaps she needs a better laundry soap"

Her husband looked on, but remained silent.

Every time her neighbor would hang her wash out to dry, the
young woman would make the same comments.

About one month later, the woman was surprised to see a
nice clean wash on the line and said to her husband:

"Look, she has learned how to wash correctly.
I wonder who taught her this?"

The husband said, "I got up early this morning and cleaned our windows."

- Author Unknown

April 2010

2010-04-13T08:58:00.000-07:00

April 1, 2010

RE: Monthly Letter

Dear Clients:

Weren’t the Olympics just great to watch? (I think I’m going to open a curling stadium and bar in a closed big box!) Aside from raw talent, what makes these people champions while the rest of us are wannabes or spectators? In a word, it’s their will to win. They let nothing get in the way of their goals.

In April I will be celebrating my 25^th year in the commercial real estate business. I’m not sure if it is because of my laser-like focus and champion desires or being too dumb to do anything else, but I will probably settle for the fact that I am just a plain old deal junkie. One thing that I certainly have learned is that you can’t control the state of the market you are in, but when you master your own state of mind and live in the state of constantly believing you’re about to uncover some great new opportunity or deal for yourself, you’ll maximize your own level of productivity in any kind of real estate market.

Last March the world looked like it might be coming to an end. The Dow had dropped to a low of 6547, and there seemed no end in sight. A year later the Dow has rocketed back 68 percent. There are still huge worries about jobs, deficits, and the government’s role in propping up a shaky financial system. But the market’s climb means that, for now, the world is betting on a sustained economic recovery. The question is when will the “Great Recession” turn into the “Great Rebound”? I think the Consumer Confidence Index tells the story well:

25.3 – Consumer Confidence Index last year – a record low.
46 – Consumer Confidence Index last month.
90 – Consumer Confidence Index that most economists consider as a healthy economy.

Staying focused on the positive, RBC Capital Markets and Retail LeaseTrac reported that the tide may be turning when it comes to retailers looking for space. For the first time in more than a year, the number of retailers planning openings in the next 24 months has increased. A sampling of those retailers looking to grow are:

Quiznos	CVS
Anytime Fitness	Chase Bank
Dollar Tree	T-Mobile
Cartridge World	Aaron’s Rents
Chipotle	Great Clips
7-11	Ace Cash Express

Close to home, Union Bank surveyed small business owners in San Diego and reported optimism on the rise. Fifty-six percent expected 2010 to be more profitable than 2009. However, 69 percent anticipated maintaining the same staffing levels which means we are not out of the woods yet.

On the topic of banks, a flood of new bank failures will continue to keep our fragile market destabilized. The FDIC is closing four banks a week and could do so for up to two years according to some reports. The instability is stifling the borrowing environment and leading us to the edge of a double-dip recession.

As I have reported to many of you in conversations, the tenant market and demand for space is, “spitting and sputtering.” One day it seems like the good olde days, and by the following week we’re flat on our butts again.

This year’s health care debate brought new meaning to the term “March Madness.” My head is still spinning, but I am reminded that politics is like sausage making. From what I saw, Washington DC certainly had its share of wieners this month. Perhaps now our representatives can remember what then candidate Bill Clinton famously said: “It’s the economy, stupid.”

Historically, economic recoveries start with small businesses. Recessions and economic challenges spurred people to take the plunge and strike out on their own. The big obstacle now is the lack of credit available to the budding entrepreneur/ Olympian. To get a sustained recovery we need to get jobs; to get jobs we need small business formation; and to get small business formation we need credit. The recovery in employment is a key driver for consumer spending. When you get a job, you can go out to lunch, the restaurant owner can buy shoes for his kid, the retailer can hire a new worker to meet recovering demand, and so on. Or we can rely on government stimulus… (see story below).

“Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence.

- Helen Keller

Regards,

Don

Don S. Zech

CDC Commercial, Inc.

Real Estate Services

A Stimulus Story

It is the month of August, on the shores of the Black Sea. It is
raining, and the little town looks totally deserted. It is tough times,
everybody is in debt, and everybody lives on credit.

Suddenly, a rich tourist comes to town.

He enters the only hotel, lays a 100 Euro note on the reception counter,
and goes to inspect the rooms upstairs in order to pick one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to
the butcher.

The Butcher takes the 100 Euro note, and runs to pay his debt to the pig
grower.

The pig grower takes the 100 Euro note, and runs to pay his debt to the
supplier of his feed and fuel.

The supplier of feed and fuel takes the 100 Euro note and runs to pay
his debt to the town's prostitute that in these hard times, gave her
"services" on credit.

The hooker runs to the hotel, and pays off her debt with the 100 Euro
note to the hotel proprietor to pay for the rooms that she rented when
she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so
that the rich tourist will not suspect anything.

At that moment, the rich tourist comes down after inspecting the rooms,
and takes his 100 Euro note, after saying that he did not like any of
the rooms, and leaves town.

No one earned anything. However, the whole town is now without debt, and
looks to the future with a lot of optimism..

And that, ladies and gentlemen, is how the United States Government is
doing business today.

--Jane Goulart

March 2010

2010-03-13T08:57:00.000-08:00

March 1, 2010

RE: Monthly Letter

Dear Clients:

Do you ever have those days when you would prefer to stay snuggled in bed and not face the uncertainties of business or life? When things are going well, it is only natural to feel certain they will continue. And the same goes for when things are going badly. But in either case, there is no certainty, just constant change.

Besides being a short month, I have to tell you it has been one with a great deal of mixed signals and data. A recent Congressional Oversight Panel stated:

“The withdrawal of small business loans because of disproportionate exposure to commercial real estate capital creates a negative feedback loop that suppresses economic recovery,” the COP report stated. “Fewer loans to small businesses hamper employment growth, which could prolong commercial real estate problems by contributing to higher vacancy rates and lower cash flows.”

I attended the recent USD Commercial Real Estate Conference and had the pleasure of listening to Sam Zell the famous real estate mogul and billionaire. A couple of highlights that weren’t covered in the news but I thought were worth sharing:

If LIBOR stays below 3%, commercial real estate will avoid a collapse.
We are in a demand recession.
Residential has bottomed except in a few excess inventory areas (Vegas, So. Cal, S. Fla).
The low velocity of money is why we haven’t seen inflation yet.

Interestingly, he also touched on the fact that he is buying in Olay Mesa and working to develop a dedicated airplane border crossing with Tijuana Airport. This could be a very interesting opportunity if successful.

Normally I like to report things that are looking up. Here are a few things that are looking up but argue against short-term job growth and a sustainable economy.

Interest rates will rise.

The more competition there is for money (private and government), the more it will cost to borrow.

Energy prices will rise.

Recent storms, low reserves, and manipulation will drag prices higher.

Food prices will rise.

Higher energy, higher interest equals higher food prices.

Inflation will rise.

Increases in the cost of money, energy, and food will result in the dollar buying less.

Taxes will rise.

The only way to pick up the tab for our bloated government and pay back what we borrowed to cover the gap between what we spend and what we can afford.

Litigation will rise.

Investors, insiders, lenders, borrowers, agents, title companies, accountants, and attorneys. We live in a “not my fault” society.

Commercial defaults, bankruptcies, and foreclosures will rise.

Banks will bring in partners as they do work outs and joint ventures.

Okay, so I am not considered a total downer, let me throw in a few more positive items.

In December, more than one-third (35%) of executives surveyed predicted the worst of the economic crisis is behind us.
The University of San Diego (USD) local index of leading economic indicators rose .7 percent in December and again in January. The first time since April 2004, all six components of the index were positive.

Recently, Governor Arnold Schwarzenegger announced the California Building Standards Commission unanimously adopted the first-in-the-nation mandatory Green Building Standards Code (CALGREEN) requiring all new buildings in the state be more energy efficient and environmentally responsible. CALGREEN will take effect on January 1, 2011. These comprehensive regulations are designed to achieve major reductions in greenhouse gas emissions, energy consumption, and water.

CALGREEN requires all new buildings constructed in California to reduce water consumption by 20%, to divert 50% of construction waste from landfills, and to install low pollutant-emitting materials.

The new code will also require separate water meters for nonresidential buildings’ indoor and outdoor water use, with a requirement for moisture-sensing irrigation systems for larger landscape projects and mandatory inspections of energy systems (e.g., heat furnace, air conditioner, and mechanical equipment) for nonresidential buildings over 10,000 square feet to ensure that all are working at their maximum capacity and according to their design efficiencies. The California Air Resources Board estimates that the mandatory provisions will reduce greenhouse gas emissions by 3 million metric tons equivalent in 2020.

The commercial real estate market depends critically on employment. We need meaningful, sustained gains in employment before we can expect a stabilization of trends in real estate fundamentals. I think that is still a ways off. The week from now through May will be very volatile as we ping pong from one crisis and uncertainty to another. But the real danger is relatively low. China is not going to kill its growth. The Fed is not going to raise rates by 2 percentage points. The real danger remains in the second half of the year when we could see the dreaded double dip.

In the meantime, I hope you can get a laugh from someone else’s distress…

Regards,

Don

Don S. Zech

CDC Commercial, Inc.

Real Estate Services

Tenant Distress Calls

The toilet is blocked, and we cannot bathe the children until it is cleared.

I want some repairs done to my stove as it has backfired and burnt my knob off.

This is to let you know that there is a smell coming from the man next door.

The toilet seat is cracked: where do I stand?

I am writing on behalf of my sink which is running away from the wall.

I request your permission to remove my drawers in the kitchen.

Our lavatory seat is broken in half and is now in three pieces.

The person next door has a large erection in his back garden which is unsightly and dangerous.

Will you please send someone to mend our cracked sidewalk? Yesterday my wife tripped on it and is now pregnant.

Our kitchen floor is very damp, we have two children and would like a third, so would you please send someone to do something about it.

Will you please send a man to look at my water; it is a funny color and not fit to drink.

Would you please send a man to repair my downspout? I am an old age pensioner and need it straight away.

Could you please send someone to fix our bath tap? My wife got her toe stuck in it, and it is very uncomfortable for us.

When the workmen were here, they put their tools in my wife’s new drawers and made a mess. Please send men with clean tools to finish the job and keep my wife happy.

February 2010

2010-02-13T08:57:00.000-08:00

February 1, 2010

RE: Monthly Letter & Gold Report

Dear Clients:

“God grant me the serenity

to accept the things I cannot change;

the courage to change the things that I can;

and the wisdom to know the difference.”

~ Reinhold Niebuhr’s Serenity Prayer

With the New Year now upon us, it is with relief that I look back upon 2009, glad that the year is behind us. It was a year full of personal and professional challenges for many, and I am happy to welcome in the New Year and a new decade.

I am pleased to be announcing the 2010 edition of the CDC Commercial — Gold Report (www.cdccommercial.com/GoldReport2010)

I hope you enjoy and learn from this report. This is the 14^th edition I have written, and as in past reports, I hope you enjoy reading it as much as I do writing it.

I did have to laugh when I recently read that the well-respected Christopher Thornberg of Beacon Economist summed it up by saying, “2010 is a giant question mark. There is no consensus (among economists) of what is going to happen.”

There are so many things that are beyond our control: the economy, interest rates, unemployment, health care costs, global warming, etc. Foreclosures are mounting along with tenant defaults, not to mention the challenge of getting adequate financing. Each of these factors seems overwhelming and provides ample excuses as to why we’re not doing well. As a matter of fact, the sheer gloom and doom in the marketplace is reason enough to sit back and wait for things to get better. Well, I for one am not willing to wait around. I am not going to wait around for the government or the industry to create a stimulus plan for 2010. Instead, I am preparing to focus on the things I can change and stop focusing on things I can’t change. Personally, I have decided to make 2010 my best year ever!

With that said, let me share some positive news from the “front line.” Although we are far from booming, we had more inbound calls in December than any of the previous 5 years. We closed a deal on January 2^nd (earliest deal ever). We have closed more deals in January than any month in the past 12. Now for the sobering news; the deals are harder, smaller, shorter terms, and for less rent — but we’re doing deals. We are leasing and sales warriors!

I hope that you enjoy this year’s Gold Report and that it is insightful for your action plan for the year ahead. Otherwise, I hope the advice to staying young and happy below is an answer to your prayers.

Regards,

Don

Don S. Zech

CDC Commercial, Inc.

Real Estate Services

How to Stay Young and Happy!

Throw out all the nonessential numbers. This includes age, weight, and height. Let the doctor worry about them — that is why you pay them.

Keep only cheerful friends. The grouches pull you down. If you really need a grouch, there are probably a few of your relatives to do the job.

Keep learning. Learn more about the computer, crafts, gardening, whatever. Just never let your brain idle.

Laugh often, long, and loud. Laugh until you gasp for breath. Laugh so much that you can be tracked in the store by your distinctive laughter.

The tears happen. Endure, grieve, and move on. The only person who is with you your entire life is yourself.

Surround yourself with what you love, whether it is family, pets, keepsakes, music, plants, hobbies, whatever. Your home is your refuge.

Cherish your health. If it is good — preserve it. If it is unstable — improve it. If it is beyond what you can improve — get help.

Don’t take guilt trips. Go to the mall, the next county, a foreign country…but not to guilt.

Tell the people you love that you love them, at every opportunity.

And remember that Life is not measured by the number of breaths we take…but by the moments that take our breath away!

December 2009

2009-12-13T08:54:00.000-08:00

December 1, 2009

RE: Monthly Letter

Dear Clients:

I have come to learn that there are four stages to life:

1) You believe in Santa Claus

2) You don’t believe in Santa Claus

3) You are Santa Claus

4) You look like Santa Claus

Wow, what a year! For over 25 years I have had the following quote hanging over my desk, “When the going gets tough the tough get going”. Being a salesman and in the real estate business means there are always problems, but it is solving them that gets us paid. If you’ve survived this year, you’re already a winner! Now it is time to find and take advantage of the opportunities that will present themselves.

Commercial property remains extremely stressed with high unemployment pushing up the vacancies, lack of available credit, and values still plunging that give little prospect for significant short-term improvement. The problems are now more clearly defined, but understanding them leaves us with a grim sense of reality. As our market bottoms out, there will be a long expected deluge of loan work outs, write downs, defaults and foreclosures, followed by the rush of patient, cash rich investors tapping the attractive bottom of the cycle buying opportunities. The air within the commercial real estate sector is stale and still. Activity is needed to create a breeze and stir the air. This activity will come long before economic stability returns and it will be created by owners, lenders and brokers who begin to deal with the issues before them rather than continue to “kick the can further down the road”.

The primary problem for commercial real estate today is a lack of demand caused by an economic recession that includes significant job losses, a historic decline in consumer spending, a global slowdown in import and export activity, and the collapse of the residential housing market. For commercial real estate the key to any meaningful turn around hinges on job growth. Since December of 2007, the U.S. economy has shed nearly 8 million jobs. The widely reported unemployment rate (U3- people recently laid off) is 10.2%. However, U6 or “those who want a job but can’t find one” is 17.5% (for California it is 19.6%).

The silver lining in today’s environment is a general lack of oversupply in most markets. New construction has been below historic trends and is at a standstill now. Other bright signs at the end of the tunnel are:

Leading indicators for the job market are improving
Consumer spending is slowly recovering
Pending home sales appear to be rebounding
U.S. manufacturing over supplies of inventory are diminishing, which should lead to increases in production again
Global demand is recovering, coupled with a weak U.S. dollar, will improve U.S. exports
A recovering economy and week labor market which lead to higher corporate earnings

In a recent LA Times article there was a story of a lady who lost everything she had by investing with Bernie Madoff. You would think she had nothing to be grateful for this Holiday Season. However, what she had to say made me stop and think what it means to be blessed. You see, she said, for perhaps the first time she started noticing small things. Like the warmth of the sun on her back and the song of the birds in the morning. Apparently her loss brought her back to the moment and realized what was truly important.

As we count our blessings this Holiday Season I would like to draw your attention to Interfaith Services. Interfaith Services is a non-profit organization that has been helping people help themselves in North County for more than 25 years(92% of every dollar goes to the needy!). Interfaith partners with over 400 faith centers to help those in our community. We have seen an 88% increase in demand for services. The sharpest increase is in the first time clients, and two parent families who are simply not able to make ends meet. I am on the Board of Interfaith and will again be serving in the soup kitchen on Christmas Eve. If you can or want to help by donating a food basket for a family, make a matching donation to sobering services, or adopt a unit (and its occupants – maintenance and mentoring) then call, email me, or go to their website; www.interfaithservices.org.

Whether you had a great year or not so great year financially, we still have to be thankful. We real estate types are a tough resilient bunch focused on how to profit from tough times. Therefore, I suggest that it is time, “For the tough to get going” because we are on the upslope as opposed to last year’s slippery slope.

Thank you for the opportunity to do business with you. Let’s work to increase our relationship by doing more business together in 2010. I hope you enjoy this year’s Christmas story as we all seek the true meaning of Christmas.

Regards,

Don

Don S. Zech

CDC Commercial, Inc.

Real Estate Services

I remember my first Christmas adventure with Grandma. I was just a kid. I remember tearing across town on my bike to visit her. On the way, my big sister dropped the bomb: "There is no Santa Claus," she jeered. "Even dummies know that!"

My Grandma was not the gushy kind, never had been. I fled to her that day because I knew she would be straight with me. I knew Grandma always told the truth. She was home, and I told her everything. Grandma was ready for me. "No Santa Claus?" she snorted.... "Ridiculous! That rumor has been going around for years, and it makes me plain mad!! Now, put on your coat, and let's go." "Go? Go where, Grandma?" I asked.

"Where" turned out to be Kerby's General Store, the one store in town that had a little bit of just about everything. As we walked through its doors, Grandma handed me ten dollars. "Take this money," she said, "and buy something for someone who needs it. I'll wait for you in the car."

I was only eight years old. I'd often gone shopping with my mother, but never had I shopped for anything all by myself. For a few moments I just stood there, confused, clutching that ten-dollar bill, wondering what to buy, and who on earth to buy it for.

I was just about thought out, when I suddenly thought of Bobby Decker. He was a kid with bad breath and messy hair, and he sat right behind me in Mrs. Pollock's grade-two class. Bobby Decker didn't have a coat. I knew that because he never went out to recess during the winter. I fingered the ten-dollar bill with growing excitement. I would buy Bobby Decker a coat! I settled on a red corduroy one that had a hood to it. It looked real warm, and he would like that.

"Is this a Christmas present for someone?" the lady behind the counter asked kindly, as I laid my ten dollars down."Yes, ma'am," I replied shyly. "It's for Bobby." The nice lady smiled at me, as I told her about how Bobby really needed a good winter coat. I didn't get any change, but she put the coat in a bag, smiled again, and wished me a Merry Christmas.

That evening, Grandma helped me wrap the coat (a little tag fell out of the coat, and Grandma tucked it in her Bible) in Christmas paper and ribbons and wrote, "To Bobby, From Santa Claus" on it. Grandma said that Santa always insisted on secrecy. Then she drove me over to Bobby Decker's house, explaining as we went that I was now and forever officially, one of Santa's helpers.

Grandma parked down the street from Bobby's house, and she and I crept noiselessly and hid in the bushes by his front walk. Then Grandma gave me a nudge. I took a deep breath, dashed for his front door, threw the present down on his step, pounded his door and flew back to the safety of the bushes and Grandma. Together we waited breathlessly in the darkness for the front door to open. Finally it did, and there stood Bobby.

Fifty years haven't dimmed the thrill of those moments spent shivering, beside my Grandma, in Bobby Decker's bushes. That night, I realized that those awful rumors about Santa Claus were just what Grandma said they were: ridiculous. Santa was alive and well, and we were on his team. I still have the Bible, with the coat tag tucked inside: $19.95.

Happy Holidays and Happy New Year from the Team at CDC Commercial Inc.

Don, Candy, Nancy, Nick & Rebekah

November 2009

2009-11-13T08:54:00.000-08:00

November 2, 2009

RE: Monthly Letter

Dear Clients:

Well, Halloween has passed so the screaming should stop right? Unfortunately it is still frightening out there with lots of things to worry about. On the bright side, this might have been the best October in recent memory. No life threatening fires or financial system melt downs.

My report is mixed. We are seeing more over all activity. Part of it is a spike of new listings as vacancy continues to rise. (For us this is good in the long haul, but in the short term it is expensive and time consuming.) Deals are there but none are easy; and tenant, lender and government constraints are making deals harder and harder to get done. Some short case studies to give you some insight:

Tenant signs lease after 30% reduction in asking rent and 3 months free rent to do own TI’s. Two weeks after signing, tenant decides they want a different space in the building for the same deal.
Closed gas station site, formerly auto shop, goes vacant for 7 months. We find a smog shop tenant but city says use is no longer allowed and “grandfather” clause expired after 6 months.
Month to month tenant given notice to move because we found a 5 year replacement tenant. Month to month tenant decides they don’t want to move and hold over illegally.
Escrow with a very strong buyer taking over an existing loan. Lender approves but FDIC and lender now require an appraisal.
Countless tenants and buyers stuck in neutral not able to get financing.

Historically we have measured our nation’s Gross National Product (GNP) as a yardstick of our success and happiness. Soon we may need to have a new measure, perhaps a GNH (Gross National Happiness). I have found that people will put up with a lot — but not with anyone or anything that imperils their future. There is practically nothing that lowers Americans’ happiness more than taking away faith in a better tomorrow.

Wasn’t it just a year or two ago that you closed on that once in a lifetime deal, with rents sure to go up, tenants strong, and economically secure? The interest only loan you’d refinance in a few years and pull your money out. So now what? The downturn was predictable (though most of us suffer amnesia about past cycles). But this cycle too will bottom out, be stagnant for a few years, then appreciate slowly, and then faster and faster until it overheats again. Sandy Sigel, wiring for Shopping Center Magazine, gave these tips for surviving this part of the cycle:

Communicate – with tenants, lenders, investors, brokers and property managers
Control your costs
Help your tenants
Monitor tenant sales
Know your tenants success stories and let others know (brokers, lenders, and other tenants). Success breeds success.
Hire experienced advisors – advisors with over 15 or 20 years in the business are worth their weight in gold in these times. – I knew I stayed in the business for 25 years for a reason!

I know it is easy to feel hopeless at times like these. Have you ever heard of the famous book “The Power of Positive Thinking” by Dr. Norman Vincent Peale? You would think that if anyone understood persistence in the face of adversity, it would be him. Yet, most would not know that he threw away his final manuscript because he thought it would never sell. His wife, however, pulled it from the trash, took it to the publisher — and the rest, as they say, is history!

The voices in our head can get very loud when the going gets tough. Don’t listen – the only way to fail in life is to stop. So next time you are feeling beat up and despondent, just take one more step and repeat as necessary until you reach your goal (or we get to the next up cycle!). If that doesn’t work, you might enjoy the new voicemail system we are evaluating.

Regards,

Don

Don S. Zech

CDC Commercial, Inc.

Real Estate Services

Hello… Welcome to the Psychiatric Hotline…

If you are obsessive compulsive, please press 1 repeatedly.

If you are codependent, please ask someone to press 2.

If you have multiple personalities, please press 3, 4, 5, and 6.

If you’re schizophrenic, listen carefully and a little voice will tell you which number to press.

If you are manic depressive, it doesn’t matter which number you press. No one will answer.

If you are paranoid, we know who you are and what you want. Just stay on the line so we can trace the call.

And if you are a tenant or owner, call 1-760-743-8500 for the best commercial real estate service available!

October 2009

2009-10-13T08:53:00.000-07:00

October 1, 2009

RE: Monthly Letter

Dear Clients:

Well, folks, this has been an interesting month. My “baby” daughter turned sweet 16, my mom had her knee replaced, the kids all went back to school (tuition numbers continue to stagger me), and it appears that the economy has started to resurface. Even an occasional Charger loss can be taken in stride (so long as they choose to relocate to Escondido!).

Hip, hip, hooray you say? That’s what I thought. However, several very smart people I read or listen to say the other shoe is going to drop and there is nothing we (or Washington) are going to be able to do about it.

Christopher Thornberg with Beacon Economics says that there is “more economic trouble on the horizon with rising unemployment and additional waves of foreclosures. The second half of 2010 will be very weak, and 2011 will be very grim.”

Mid month I attended a talk by John Cushman, the chairman of Cushman Wakefield. He highlighted the concern that I have had and that is the commercial real estate’s version of “mark to market.” It is called “Maturity Default.” This is when your loan comes due, and you can’t qualify for a refinance because the price has dropped and the loan terms have gotten tougher. Cushman talked about 1 trillion dollars of debt coming due between now and the end of 2010 and a billion a year every year thereafter until 2020.

NOTE: Did you know that if you subtracted a trillion seconds from today you would return to a time before we invented language? Now multiply that by 9 to get our deficit this year – I’m speechless!

Gary London, a San Diego real estate economist and consultant, reports that commercial markets are in a “free fall.” He cites lack of demand for space, rising cap rates, and loan defaults all leading to a long-term over supply and/or under demand era.

On the bright front, Alan Gin and the University of San Diego’s index of leading economic indicators surged forward in August lead by consumer confidence.

Two phrases have entered my recent vocabulary: “Pretend and extend” and “A rolling loan gathers no loss.” Well it looks like we are about to enter the era of “admit and unload.” Banks will need to take the tough steps of realizing losses and off loading billions of dollars of mortgages sitting on their balance sheets. Once these losses have been accepted, rents will be reset by new buyers forcing neighboring properties to do the same to avoid losing tenants. This process will take us through 2011 or 2012.

I know that you already know that government is here to help. A study by the state was just completed (it was due in 2007) entitled “Cost of State Regulations on California’s Small Businesses.” The study finds the total cost of regulation to the state of California (not the small businesses) is $493 billion which is 5 times the state’s general fund budget and almost a third of the state’s GDP. The regulations cost 3.8 million jobs which is a tenth of the state’s population (last time I looked we had 10% unemployment — hmm, let me see…).

Split-roll tax is back on the front burner. This is where they repeal Prop 13 tax protection for commercial property and reassess property every year or two. If you have NNN leases, let your tenants know. If you have gross leases, hang on to your wallet as your taxes go up.

Samuel Clemens (Mark Twain) once described the 1880s as a “bad mood era.” However, Henry Ford would later say, “Whether you believe you can or you can’t, either way you’re right.”

Fred Schnaubelt, a loan broker, investor, and guest writer for the San Diego Transcript hits the nail on the head:

What causes real estate booms and crashes?

“If nothing else, note, mark, and remember this basic premise. Increases in money and credit cause booms. Contractions in money and credit cause recessions. Booms are impossible without an expansion in money and credit to pay for across-the-board price increases — impossible without government interventions. Presently the Federal Reserve (our central bank) is trying to reinflate the economy by flooding the banks with oceans of money. Banks, in a panic, are not loaning out the money as they prepare for $200 billion or more in commercial loan defaults expected in 2010 and 2011. Those loans booked in 2000 and 2001 coming due. Today, economists predicting deflation before inflation are the most persuasive. Inflation is not on the horizon. Ultimately, the choices will not be between a Lady or a Tiger, but a savage tiger and a roaring lion. Forewarned is forearmed. No illusions, just least bad options ahead. Knowing what to expect alleviates anxiety, lets us sleep at night, and gives us an inner peace in the midst of calamity.”

Finally, John Cushman also said in his talk that more wealth will be created over the next several years than ever in history. This will likely be the greatest real estate buying opportunity in our lifetimes. Keep your head about you — we could all be rich! Hope you enjoy the story!

Regards,

Don

Don S. Zech

CDC Commercial, Inc.

Real Estate Services

Back in the old Wild West, there were two blond cowpokes, Jeff and Dave. One day, the two were enjoying a strong sarsaparilla in the local saloon when a man walked into the bar with an Indian’s head under his arm.

The barman shakes his hand and says, “I hate Indians; last week the bastards burnt my barn to the ground, assaulted my wife, and killed my children.” He then says, “If any man brings me the head of an Indian, I’ll give him one thousand dollars.”

The two blonds looked at each other and walked out of the bar to go hunting for an Indian. They were walking around for a while when suddenly they saw one. Jeff threw a rock which hit the Indian right on the head.

The Indian fell off his horse but landed seventy feet down a ravine. The two nuts made their way down the ravine where Dave pulled out a knife to claim their trophy.

Suddenly, Jeff said, “Dave, take a look at this.” Dave replied, “Not now, I’m busy.”

Jeff tugged him on the shoulder and says, “I really think you should look at this.”

Dave said, “Look, you can see I’m busy. There’s a thousand dollars in my hand.”

But Jeff was adamant. “Please Dave, take a look at this.”

So Dave looked up and saw that standing at the top of the ravine were five thousand red Indians.

Dave just shook his head and said, “Oh…my…God…we’re going to be millionaires!”

September 2009

2009-09-13T08:53:00.000-07:00

September 1, 2009

RE: Monthly Letter

Dear Clients:

Deciding if Brett Favre is going to be playing football this year or not is about the same as predicting if our economy is on the road to recovery or not. This economy wants to recover just as much as I want to start watching football!

Unemployment in San Diego stands at 10.3% (12.1% for California and 9.7% for the Nation). Significant job losses have reduced demand for commercial space and lack of credit has stalled tenants’ ability to do deals, owners to refinance, or buyers to make acquisitions. It is now critical that the Federal Reserve increase liquidity by purchasing commercial mortgage backed securities. Because commercial real estate always lags in overall economic recovery, it is going to be a while until we see a recovery in commercial real estate. Interbank lending has stabilized, investor and consumer confidence levels have moved off of recent lows; the USD index of leading economic indicators has had its fourth consecutive monthly gain; home sales are rising and aggressive corporate cost cutting have resulted in better than expected profits. However, we have a long way to go before returning to “normal”, but it does appear that conditions are improving and moving in the right direction. There might be beer money for those football games yet!

I’ve long been concerned by the term “bailout”. The only time I have heard this term used was in a leaking boat or in helping someone out of jail. In both cases, before you could be successful, you had to fix the problem. (The hole in the case of the boat and the behavior in the case of the jail bird.) Before all of these government bailouts began, we had much more of a free market economy going on. Now we must be careful that the treatment doesn’t kill the patient. These bailouts have been very kind to both Wall Street and to the banking industry while leaving the commercial real estate industry to fend for itself. These bail outs have definitely been masking how the stock market would have really been performing without bailouts.

In a recent article in The Wall Street Journal, former hedge fund manager Andy Kessler may have summed it all up best when he said:

“By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn’t put money directly into the stock market, but he didn’t have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn’t go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market.”

In addition, stock market analysts have done the calculations and have discovered that a recent $2.7 trillion jump in the value of equities in the stock market, corresponded with only a $400 billion drop during the exact same period in money market accounts. So where did this additional $2.3 trillion rise in the value of equities come from? From the bailout money being given to the U.S. banks and financial institutions, and the reinvestment of that money by these institutions directly back into the stock market!

If you doubt me, check out these two charts from the Federal Reserve.

So why hasn’t inflation occurred yet? Although a lot of money has technically been created, much of it has not been used. Economists refer to the term “velocity” of money to describe how quickly money changes hands as it is lent time and again. Inflation is not just a function of the amount of money in the system but also it’s frequency of use. It appears that all the money is “in the bank” (banking reserves). With no banks lending we don’t have inflation – yet. Whether the pickup in money velocity leads to significantly higher inflation depends on how quickly the Fed pulls the reins back on the extra ordinary credit it is currently providing.

John Wooden, the greatest coach of all time (and who my business plan and company logo are modeled after), once said; “Be quick but don’t hurry”. I recently read an interview with John Kotter, author of a new book “A Sense of Urgency”. I thought he made a number of great points that all of us can take to heart as we try to push forward in making deals. The quotes that hit home with me were:

“There are lots of signs of false urgency,” Kotter told Inc. “Frenetic activity. Everyone is exhausted. Working 14-hour days. One red flag is how difficult it is to schedule a meeting.”
“A false sense of urgency,” he wrote in his book, “is pervasive and insidious because people mistake activity for productivity”
But when people have a true sense of urgency, he wrote, “they think that action on critical issues is needed now… Now means real progress every single day. Critically important means challenges that are central to success or survival, winning or losing.
“Underlying a true sense of urgency,” Kotter writes, “is a set of feelings: a compulsive determination to move, and win, now.”
“When it comes to affecting behavior – creating alert, fast-moving actions that are focused… relentlessly…, pushing to achieve more ambitious goals despite the obstacles, trying to achieve progress each and every day, constantly purging low-value activities so that time is available to do all this.”

Gone are the days of making a profit in real estate by buying and selling a few years later. Today you must: 1) protect and enhance the value of your assets, 2) adapt to the changing investment climate and, 3) cut costs and reallocate precious resources. In doing this I thought it would be useful for you to know tenants top complaints.

Temperature – HVAC must be working (especially on 100 degree Augusts!)
Cleanliness – janitorial, bathrooms, common area. Clean space is a sign of a good landlord.
Elevator (if you have one) must be working.
Parking – must be easy. Not too crowded but not too empty.

At the same time, you should be watching your tenants for signs of stress;

Talk to them – know where they are at. Information is the new currency. Ask them: What are you doing right? What at the property supports your business? What can you do better?
How many empty desks or shelves do they have? How much inventory do they have?
Is the store or office busy?
How full is the parking lot?

Whether you are Brett Favre or a tired commercial real estate broker or investor, I hope you can summon the passion to find that sense of urgency to do just one more deal. As you look for that passion, I hope you enjoy the story below.

Regards,

Don

Don S. Zech
CDC Commercial, Inc.
Real Estate Services

KURTIS THE STOCK BOY AND BRENDA THE CHECKOUT GIRL

In a supermarket, Kurtis the stock boy was busily working when a new voice came over the loud speaker asking for a carry out at register 4. Kurtis was almost finished, and wanted to get some fresh air, and decided to answer the call. As he approached the check-out stand a distant smile caught his eye, the new check-out girl was beautiful. She was an older woman (maybe 26 and he was only 22) and he fell in love.

Later that day, after his shift was over, he waited by the punch clock to find out her name. She came into the break room, smiled softly at him, took her card and punched out, then left. He looked at her card, BRENDA. He walked out only to see her start walking up the road. Next day, he waited outside as she left the supermarket, and offered her a ride home. He looked harmless enough, and she accepted. When he dropped her off, he asked if maybe he could see her again, outside of work. She simply said it wasn’t possible.

He pressed and she explained she had two children and she couldn’t afford a baby-sitter, so he offered to pay for the baby-sitter. Reluctantly she accepted his offer for a date for the following Saturday. That Saturday night he arrived at her door only to have her tell him that she was unable to go with him. The baby-sitter had called and canceled. To which Kurtis simply said, “Well, let’s take the kids with us.”

She tried to explain that taking the children was not an option, but again not taking no for an answer, he pressed. Finally Brenda brought him inside to meet her children. She had an older daughter Jessie, who was just as cute as a bug, Kurtis thought. Then Brenda brought out her son, Zachary, in a wheelchair. He was born a paraplegic with Down Syndrome.

Kurtis asked Brenda, “I still don’t understand why the kids can’t come with us?” Brenda was amazed. Most men would run away from a woman with two kids, especially if one had disabilities – just like her first husband and father of her children had done. Kurtis was not ordinary… he had a different mindset.

That evening Kurtis and Brenda loaded up the kids, went to dinner and the movies. When her son needed anything Kurtis would take care of him. When he needed to use the restroom, he picked him up out of his wheelchair, took him and brought him back. The kids loved Kurtis. At the end of the evening, Brenda knew this was the man she was going to marry and spend the rest of her life with.

A year later, they were married and Kurtis adopted Jessie and Zachary. Since then Brenda and Kurtis have added five children of their own: sons Elijah and Kade, daughter Jada, and twin girls Sierra Rose and Sienna Rae.

So what happened to Kurtis the stock boy and Brenda the check-out girl? Well, Mr. & Mrs. Kurt Warner now live in Arizona, where he is currently employed as the quarterback of the National Football League Arizona Cardinals as they prepare for a new season. Is this a surprise ending or could you have guessed that he was not an ordinary person.

It should be noted that he also quarterbacked the Rams in the Super Bowl XXXVI. He has also been the NFL’s Most Valuable Player twice and the Super Bowl’s Most Valuable Player.

August 2009

2009-08-13T08:52:00.000-07:00

August 1, 2009

RE: Monthly Letter

Dear Clients:

Before the advent of electric lights, coffee bars in McDonald’s, and wee-hours Will & Grace reruns, “early to bed, early to rise” wasn’t just a quaint prescription for health & wealth — it was a way of life. But now, when a late night of work or play — or waiting for your teenage to come home — is often followed by an early morning conference call, you need every trick in the book to stay energized and happy. Research shows that despite all of our improvements, the rate of happiness is still flat line. Pills are being popped by the billions, yet research also shows that a smile is still the surest way to achieve happiness.

Now three cheers for the USD index of leading economic indicators for San Diego which is up three months in a row! I thought I would take this time to give a short mid-year report.

RETAIL

There has been a 75% decline in retail property transaction volume. The recession is causing many retail tenants to go out of business and leaving us far fewer replacements to fill the empty storefronts. Because of this, the countrywide vacancy rate has risen to 5.5% from 4% last year at this time. However, North County is at 7.5%. (Still not bad by most standards — but doesn’t matter if you’re the one with the vacancy!) Lack of new construction also helps in keeping this sector a little more stable. A weak consumer causing retailers to suffer and lack of lending will lead to loan defaults. Retail will begin to stabilize in 2010 but not recover fully until 2013.

OFFICE

Vacancy continues to rise (7 straight quarters). Countywide vacancy is 20%. New construction added nearly 400,000 square feet of space to the market (good timing, huh?). Fortunately, 25% of it was pre-leased, but that is still 300,000 of vacant space added to a declining market. Until we see job growth, there will not be a turnaround in the office market. 2011-2012 is our best guess. In the meantime, tenants are king. Be aggressive and creative in making deals!

INDUSTRIAL

The weak economy has hit the industrial market as well. Vacancies have risen from the mid 7’s to 9%. Like the other two sectors, we need to restore confidence to the

consumer and restore job growth so that manufacturing and distribution demand will grow again. This should start as early as 2010 but more likely 2011.

2009 and 2010 are going to be rebuilding years. Lease and sale deals are tougher to close. Deals take a little longer to close (which is why you need a pesky broker to keep bugging everybody about the details). The last year has been a very difficult period in real estate history. Not very good news if you started your “buy and hold” in 2007 but certainly works for you now as a buyer. It is not time to focus on when so much as what: What will be your angle in this new world?

I am excited about this marketplace because I believe we will see opportunities like we have never seen before. Keep your eyes open for:

increasingly higher cap rates.
property for sale below replacement cost.
rents below market.
Distressed sellers or owners
locations with high barriers to entry.

Please know that we are out on the streets working tirelessly for you. Please let us know if you or your tenants or your friends are looking to lease or buy. With tenants and buyers “being king,” we are finding referrals from our clients to be one of our most powerful sources for leads.

We are entering a new era…one in which we will be competing with everyone, everywhere, every time. Makes me tired just thinking about it! Hope you enjoy this month’s story!

Regards,

Don

Don S. Zech

CDC Commercial, Inc.

Real Estate Services

ARE YOU TIRED?

We have run across some absolutely irrefutable statistics that show exactly why you are tired. And brother, it’s no wonder you’re tired either. There aren’t as many people actually working as you may have thought, at least not according to the survey recently completed.

The population of this country is 275 million, 95 million over 60 years of age, which leaves 180 million to do the work. People under 21 years of age total 100 million, which leaves 80 million to do the work.

There are 50 million who are employed by the government, which leaves 30 million to do the work. Twelve million are in the Armed Forces, security, and police force which leaves 18 million to do the work. Deduct 15,549,000, the number in state and city offices, leaving 2,451,000 to do the work. There are 188,000 in hospitals, insane asylums, etc., so that leaves 2,263,000 to do the work.

Now it may interest you to know that there are 2,262,998 people in jail, so that leaves just 2 people to carry the load. That’s you and me. And I don’t know about you, but I’m tired!

July 2009

2009-07-13T08:52:00.000-07:00

July 1, 2009

RE: Monthly Letter

Dear Clients:

Happy 4th of July! I’m very reflective this year. I’ve seen outdoor grilling go from my first Hibachi to the Weber to the gas grill, and now I see outdoor cooking centers that include chrome, refrigerators, and even dishwashers! I’m afraid it is a bit like our economy has been, great growth and improvement until we lost focus, overbuilt for our needs, and now need to find our direction again. I hope for your sake and our economy that we can once again find one of the great joys of summer, that easy going, lazy family time, the old picnic table with the plastic tablecloth, the kids carrying bowls of potato salad and chips, and Dad slaving over the hot dogs and hamburgers on the barbecue with a spatula in hand.

As you read this, 77-year-old GM is going through bankruptcy, the US economy has gone through its worst decline in 50 years, economists are predicting hyper inflation, North Korea is suspected of trying to launch a 4th of July missile at Hawaii, the Taliban is trying to join the nuclear club and Israel is looking for an excuse to turn Iran into a glass parking lot, California is so in debt that it has to close state parks, and, oh yeah, the swine flu is predicted to come back in the fall. Closer to home, your retirement portfolio is worth 40% less than 2007, your house is worth 20% less, and you’re scrambling to stay afloat because your friendly banker has cut your credit line. Did I get everything?

I’m reminded of the words from the movie Network: “I’m mad as hell, and I’m not going to take it anymore.” More often than not, we can’t control what happens around (or to) us. We do, however, have total control of how we respond. Constant worry and fear is our brain’s way of “preparing us” for the worst. It causes us to be on guard and brace for impact. Wow, what an exhausting way for us to go through life. No one can predict what is going to happen in the next few years. We can say with absolute certainty, however, that every person has inside them the ability to cope and adapt to just about anything life can throw at us. And that is one thing we can never lose.

Here are a couple of ways to channel your outrage:

1. Speak up. There is an urgent need to follow how members of Congress are voting: http://www.congress.org lets you sign up for updates and forms to e-mail them your opinions.

2. Fight the spin. The airwaves are filled with spin and misinformation. Our country is undergoing unprecedented change. Use Google to learn more. Try http://www.sunlightfoundation.com to see the text of the bills and where earmarks go. Be a watchdog.

Despite growing unemployment, continuing home foreclosures, and a crippling state budget deficit, there are growing signs that the economic slump in San Diego could be approaching a bottom. The University of San Diego Index of Leading Economic Indicators has had its first uptick in two years. If this trend continues, we should hit bottom by year end or early next year. UCLA Anderson Forecast reports that California is moving out of “intensive care” but is still “very sick.” The biggest problem ahead is probably the weakness of the recovery ahead.

The Fed will probably control the road ahead with one of two scenarios:

1. Ease interest rates higher to curb inflation. However, higher rates will curb economic growth and housing, thus prolonging the recession and speed of recovery;

2. Keep short-term rates low to encourage economic growth and higher employment. This would create easy borrowing, and the Fed would be forced to either accept higher taxes to lower the deficit or monetize it by printing money to buy Treasures. This could place enormous upward pressure on inflation not unlike the 1970s and scare China and other foreign investors who we rely on to finance our debt. Neither scenario offers a pretty choice.

Jay Leno reported that the price of a postage stamp has gone up to 44 cents. The government says they have to because fewer people are using the mail. That’s government thinking for you. Hey, nobody’s buying our product — let’s raise the price!

Here’s what we’re seeing in the market battlefield:

1. We are working 2-3x harder for every deal.

2. Lenders involved in more deals - pre-foreclosure decisions.

3. Jittery tenants proposing cheap deals.

4. Need for creative deal making.

5. Weak and fearful existing tenants.

I am glad that our banks have apparently survived their stress tests. I hope you realize I survive a stress test every morning when my alarm goes off for me to go to work!

As you settle in around the picnic table this weekend, please enjoy your friends, your family, and your freedom. Hopefully, you’ll also be able to share this month’s story…a little bit of our patriotic history.

Regards,

Don

Don S. Zech

CDC Commercial, Inc.

Real Estate Services

TAPS

We in the United States have all heard the haunting song, “Taps.” It’s the song that gives us that lump in our throats and usually tears in our eyes. But, do you know the story behind the song? If not, I think you will be interested to find out about its humble beginnings.

Reportedly, it all began in 1862 during the Civil War when Union Army Captain Robert Ellicombe was with his men near Harrison’s Landing in Virginia. The Confederate Army was on the other side of the narrow strip of land. During the night, Captain Ellicombe heard the moans of a soldier who lay severely wounded on the field. Not knowing if it was a Union or Confederate soldier, the Captain decided to risk his life and bring the stricken man back for medical attention. Crawling on his stomach through the gunfire, the Captain reached the stricken soldier and began pulling him toward his encampment. When the Captain finally reached his own lines, he discovered it was actually a Confederate soldier, but the soldier was dead.

The Captain lit a lantern and suddenly caught his breath and went numb with shock. In the dim light he saw the face of the soldier. It was his own son. The boy had been studying music in the South when the war broke out. Without telling his father, the boy enlisted in the Confederate Army.

The following morning, heartbroken, the father asked permission of his superiors to give his son a full military burial despite his enemy status. His request was only partially granted. The Captain had asked if he could have a group of Army band members play a funeral dirge for his son at the funeral. The request was turned down since the soldier was a Confederate. But out of respect for the father, they did say they could give him one musician. The Captain chose a bugler. He asked the bugler to play a series of musical notes he had found on a piece of paper in the pocket of the dead youth’s uniform. This wish was granted. The haunting melody we now know as “Taps” which is used at military funerals was born.

June 2009

2009-06-13T08:52:00.000-07:00

June 1, 2009

RE: Monthly Letter

Dear Clients:

Well with summer upon us you noble swingers of golf clubs can stand proud. A recent study found the average golfer walks about 900 miles a year. Another study found golfers drink an average of 22 gallons of alcohol a year. That means the average golfer gets about 41 miles to the gallon. Makes you proud – almost feel like a hybrid!

Unfortunately, as we begin Summer we are watching the end of the car industry as we knew it. Not only do we the tax payers now own G.M., but dealerships and used car lots are coming on the market throughout San Diego County.

First the good news. The USD index of leading indicators turned upwards for the first time in several years. Yes, the economy is improving…but don’t get carried away just yet. The gains are small and the recession will linger at least through the end of the year before beginning to recover in 2010. Slow growth, inflation and higher taxes are on the menu for the next few years.

The biggest observation I continue to make is the “zombie” state that seems to hang over Tenants, banks, politicians and landlords. We’re living in a zombie economy. People are frozen by fear for their jobs, their savings, their future and are trying to march forward one step at a time while they digest what has happened and might be next.

The lesson we must learn from this “great recession” is the vital importance of simplicity in business, banking and government. Next to honesty, it is the most important virtue. More often than not, the two are interconnected. Too often the clouds of complexity hide bad judgment, incompetence, unconscionable risk taking and sheer dishonesty. It is one of the reasons I like commercial real estate so much. It is pretty simple; Tenants and landlords, income and expenses, property and loans. With a little diligence you can smell a rat or at least see it coming.

Looking at the numbers, you might think that California was in pretty good shape. General fund revenues of nearly $86 billion are nearly $4 billion more than 5 years ago. Despite our current crisis, Governor Schwarzenegger’s budget is larger than his first budget 5 years ago. California government spending has increased by 20% in 5 years! Raising sales tax has only resulted in less sales. Our national economic revival is being impeded because one-eighth of the nation’s population lives in a state that is driving itself into permanent stagnation. California must once again become the incubator of America’s future.

Peter Druker, the famed business guru, said it best… “Because its purpose is to create a customer, your business has two purposes and two purposes only: marketing and innovation. Marketing and innovation make you money, generate sales, produce profit. Everything else is an expense.”

To that degree, I remember being told that a down market creates a shift in demand to expert brokers who are smart and innovative. Well, we certainly are seeing a spike in demand for our services. However, some days I feel more like a social worker after hearing all of the sad stories. Know that we are working 6 and 7 days a week, pulling out the stops on marketing and we’re forewarning you to be prepared as we get as creative as we can to put deals together. We believe that if we have a “warm body” there is a way to get them into your space. Watch for the following ideas and strategies:

free rent
half rent
99¢ teaser rate first year
stepped rent
tenant improvements
percentage rent
option to buy
pay moving expenses
buy out old lease
short term leases
early termination option
offer start up financing
1^st right of refusals
expense caps

Like the Fed and Treasury, we are going to throw everything we can at a deal to get some movement.

Speaking of innovation, San Diego managed to buck the downward turn of venture capital investment. US Venture capital investment dropped 35% from the fourth quarter, yet San Diego saw a 22% increase. This is a good sign or as the “talking heads” say – “these are green shoots”. Now I just hope somebody talks to the banks about putting some water in the watering can!

If you want to keep up with the latest business going on in San Diego, feel free to click through to our website: http://www.cdccommercial.com where we have a live feed of San Diego business news courtesy of the San Diego Business Journal.

It is with sadness that I announce that Rob Pew has left CDC Commercial, but we’re having our own “greet shoots” as I am pleased to announce my oldest son, Nick Zech, has joined CDC Commercial, Inc. (nzech@cdccommercial.com 858.232.2100 ).

As we watch the auto industry and our economy evolve, I hope my story below gives you a glimpse of history and a lesson in good negotiating.

Regards,

Don

Don S. Zech
CDC Commercial
Real Estate Services

The Four Goldberg Brothers

The four Goldberg brothers, Lowell, Norman, Hiram, and Max, invented and developed the first automobile air conditioner. On July 17, 1946, the temperature in Detroit was 97 degrees.

The four brothers walked into old man Henry Ford's office and sweet-talked his secretary into telling him that four gentlemen were there with the most exciting innovation in the auto industry since the electric starter.

Henry was curious and invited them into his office. They refused and instead asked that he come out to the parking lot to their car.

They persuaded him to get into the car, which was about 130 degrees, turned on the air conditioner, and cooled the car off immediately.

The old man got very excited and invited them back to the office, where he offered them $3 million for the patent.

The brothers refused, saying they would settle for $2 million, but they wanted the recognition by having a label, "The Goldberg Air-Conditioner," on the dashboard of each car in which it was installed.

Now old man Ford was more than just a little anti-Semitic, and there was no way he was going to put the Goldberg's name on two million Fords.

They haggled back and forth for about two hours, and finally agreed on $4 million and that just their first names would be shown.

And so to this day, all Ford air conditioners show Lo, Norm, Hi, and Max on the controls.

So, now you know.

May 2009

2009-05-13T08:51:00.000-07:00

May 1, 2009

RE: Monthly Letter

Dear Clients:

Well, tax day has come and gone, and I am in hopes that you all have enough left to take you and your friends out for a pizza.

In the meantime, we are in the midst of “The Great Recession.” For a historical sense, below is a chart showing you how we stack up with previous recessions and time.

Since last April, our economy has ground to a crawl. Millions have lost their jobs, nest eggs have evaporated, our financial system has been brought to the brink, we’ve mortgaged our future with bailouts, wars, and stimulus spending. Let’s hope the economy turns soon so the growth takes up some of the slack, and it is not all shifted onto our tax bill.

I like to think that I am not that old, but I do remember James Earl Carter, our President, along with 21% prime interest rates and 20% inflation. I remember Paul Volker attempting to strangle inflation by strangling the money supply. With Mr. Volker returned to a quasi-official capacity, I’d guess we’re in for a bout of inflation, and his job is to minimize it. But with the money supply increased by 20%-30% of GDP, inflation must result. That means fixed assets will rise to keep pace with the devaluation of the currency. At first it will be called “re-flation”. I’m not formally schooled in these matters; I’m just a guy who has seen this movie before. The side effect of saving our economy will be a robust increase in inflation. I believe that inflation will regain all the value we have lost over the last couple of years in the next five years or less.

Warren Buffett on CNBC while praising President Obama’s efforts to stimulate the economy said, “The current course could trigger higher inflation when demand rebounds. We are certainly doing things that could lead to a lot of inflation. In economics there is no free lunch.”

In my never-ending quest to keep your toolbox full so you can be well educated about your commercial real estate, you will find below an excellent summary of the real estate cycle by The London Group. At this point, I’d put us right at about 4 pm. However, armed with this you should almost be able to predict the future!

Close to home, getting a loan continues to be the bane of investors and tenants alike. Activity remains fair, but deal closure is rare. We might finally be reaching capitulation as tenants and owners throw up their collective arms and make deals rather than go in circles any more.

So as you sit around eating pizza with what you have left from your taxes and contemplate the future looking at the real estate cycle chart, I hope you enjoy the tax story attached as it explains paying for your pizza and those that depend upon you.

Regards,

Don

Don S. Zech
CDC Commercial
Real Estate Services

Suppose that every day, ten men go out for pizza and the bill for all ten comes to $100.

If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do. The ten men ate at the pizza parlor every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

“Since you are all such good customers,” he said, “I'm going to reduce the cost of your daily pizza by $20.” Eats for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still eat for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to eat his pizza. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so the fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now paid $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 ( 22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man, "but he got $10!"

“Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too ... It's unfair that he got ten times more than I did!"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up. The next night the tenth man didn't show up for eats, so the nine sat down and had pizzas without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start eating overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D. Professor of Economics University of Georgia

April 2009

2009-04-13T08:50:00.000-07:00

April 2009

March 31st, 2009 7:02 AM

April 1, 2009

RE: Monthly Letter

Dear Clients:

Sales taxes rise by 1% today, April 1st, and that is no April Fool’s joke! In looking for humor these days, I did have to laugh at a bumper sticker that read, “Honk if I pay your mortgage”. I will tell you that never in my 24 years in the business have I worked so hard for so little. The glimmer of hope is that our call volume is slowly returning, but it is still a struggle to get deals closed because of fear, lack of credit, and people’s general uncertainty.

This is a time of resetting who wins and who loses. This is a time when leadership must shine not just management. To illustrate my statement, let me give you a better definition. Management is the efficiency of climbing the ladder of success. Leadership determines which wall to lean the ladder up against. Today’s survivors are the new winners.

As promised, here are some of the responses to last month’s request for advice/vision going forward.

#1 Thanks for the news letter. Here is my advice in the eyes of a downturn: “You never cut quick enough and you never cut deep enough.” It has to be painful to operate at that level until you adjust to it. Most companies that follow this motto survive a downturn instead of using all of your assets trying to prop up a ship taking on water, robbing Peter to pay Paul and soon find themselves too far in debt to survive.

#2 I say, use your available cash to pay down debt with a higher interest rate than banks are offering on savings, CD’s, etc. I will be paying down my mortgages to get a good return on investment and increase cash flow and at the same time have a secure investment in myself and my own property.

#3 At 33, this is my 1st down cycle as a building owner. I feel that were it not for equity, this would be a trial by fire.I feel homeowners are in Stage #2 and #3. Commercial seems to be just entering stage #2.

#4 What an exceptional newsletter. My addition to the list of what to do in this kind of market is to get above the trees at all costs so as not to be blinded by all the trees in the way. “Where there is no vision, the people perish.” (Proverbs 29:18). The long view is critical so we can see our way out of this particularly dark forest.

As spring blooms and opening day for baseball arrives, I reflect on turning losing seasons around, changes of ownerships, disappointing steroid eras, yet a new season springs with hope eternal. When I coached baseball, I used to say the best two days of a coach’s life were draft night when you were sure you had the best 12 players in the world and the team party when you could finally say goodbye to those unruly kids and their parents!

One of my favorite things to watch in baseball was the turning of an unassisted double (or even a triple) play. Well don’t look now, but our economy is starting to turn (maybe unassisted!). After months of nonstop bad news, there are hopeful signs on the horizon. They include:

a broad rally in stocks
back to back jump in retail sales (ex autos) for January & February
upward sloping yield curve
Swedish clothing store H & M plans to open 225 new stores around the world
22% surge in February housing starts
a return to profitability of several major banks
housing affordability at all-time high
Microsoft revealed plans to open retail stores
Game Stop expects sales increase of 22% over last year
a 4^1/2year high in the dollar
the Navy has added $758 million to its already planned expenditures in San Diego. All to be spent by September 2010

The National Association of Realtors – Commercial Alliance has proposed to Washington the following three goals for the Commercial Markets and the solutions to achieve them.

I. GOAL: Stabilize and Provide Liquidity to the Commercial Real Estate Credit Markets, including Mortgage-Backed Securities.

Solutions:

a. Make mark-to-market accounting rules more flexible, including use of discounted cash flow analysis for valuing assets in illiquid markets.

b. The Treasury and Federal Reserve should exercise their authority to implement and/or expand the Term Asset-Backed-Securities Loan Facility (TALF). The TALF should be encouraged to purchase commercial mortgage-backed securities and conventional commercial real estate loans.

II. GOAL: Maintain or Enhance Federal Tax Policies that Strengthen the Commercial Real Estate Market.

Solutions:

a. Retain current capital gains rules as they apply to appreciated property, like-kind exchanges and carried interests, in particular by keeping the capital gains tax rate at the existing 15%. Suspend passive loss rules.

b. Improve the depreciation, depreciation recapture and leasehold improvement rules without triggering the Alternative Minimum Tax.

c. Reduce the investment impediments caused by the passive loss rules by providing a temporary suspension of the rules for designated investments.

d. Attract new investment in existing real estate by providing higher income limits and expenditure limits to the so-called “small investor” provisions of the passive loss rules.

III. GOAL: Stimulate and Support the Commercial Real Estate Industry through Investment.

Solutions:

a. Provide federal funding for capital improvements to our nation’s infrastructure (transportation, roads, energy grids, etc.).

b. Encourage the commercial real estate industry’s investment in energy efficiency and “green” building initiatives through tax and other incentives, and not through legislative and regulatory mandates that artificially raise the cost of construction and operation of commercial real estate properties.

Our advice in the short run is as follows:

Work hard to make the deals on the table. “Time kills all deals.”
Make your existing tenants feel appreciated.
Start on renewals early.
Keep low rents and concessions short (3 years or less). Buy yourself into the future.
Give the tenant something rather than a rent reduction if possible.
If you have a loan refi coming up in the next 2 years, start work immediately. They’re all taking longer.
Be ready for inflation or at least re-flation.

If you are interested in learning more about what the future holds for Commercial Real Estate, you might want to attend the following breakfast meeting on April 15, 2009 at the USD Burnham Moore’s Center for Real Estate. “After the Fall: What’s Next for Commercial Real Estate.” www.sandiego.edu/breakfast

Remember what the great baseball wordsmith Yogi Berra once said, “The future ain’t what it used to be.”

Regards,

Don

Don S. Zech
CDC Commercial
Real Estate Services

FLORIDA COURT SETS ATHEIST HOLY DAY

In Florida, an atheist created a case against the upcoming Easter and Passover holy days. He hired an attorney to bring a discrimination case against Christians, Jews and observances of their holy days.

The argument was that it was unfair that atheists had no such recognized days.

The case was brought before a judge. After listening to the passionate presentation by the lawyer, the judge banged his gavel declaring, “Case dismissed!”

The lawyer immediately stood objecting to the ruling saying, “Your honor, how can you possibly dismiss this case? The Christians have Christmas, Easter and others. The Jews have Passover, Yom Kippur and Hanukkah, yet my client and all other atheists have no such holidays.”

The judge leaned forward in his chair saying, “But you do. Your client, counsel, is woefully ignorant.”

The judge said, “The calendar says April 1st is April Fool’s Day. Psalm 14:1 states, ‘The fool says in his heart, there is no God.’ Thus, it is the opinion of this court, that if your client says there is no God, he is a fool. Therefore, April 1st is his day. Court is adjourned.”

March 2009

2009-03-13T08:50:00.000-07:00

March 1, 2009

Re: Monthly Letter

Dear Clients:

“Wars in old times were made to get slaves.

The modern implement of imposing slavery is debt.”

~ Ezra Pound 1885-1972

Ah the power of the pen! What a rush it must be to sign the largest check in the history of mankind and without a penny in your account to back it up! Now that is leverage! And now that the banks have the bail out money from you the taxpayers, we can only hope that they will be kind enough to offer it back to us as a loan…for a fee!

As the banks sail forward in uncharted water in these unprecedented times, you can be sure these times will continue to be uncertain and unpredictable. In the last 13 months, there have been 34 bank failures. Over the next 13 months, you can expect as many as 100 more to fail, merge, or be taken over. The good news is that there are over 8,000 banks in the U.S., so this really is still a small percentage.

As I have said many times over the years of writing this letter, it is all about jobs. Keeping that in perspective, January U.S. unemployment is at 7.6%. Last January we were at 4.9%. The last time we saw 7.6% was September of 1992. The worst in recent history was 10.8% in November of 1982 (which also happens to be when I got my first job out of college!). So if you ask me when we will turn around, I will tell you, “Show me the jobs!” One thing over time has held true. Creativity and aggressive innovation — in the face of hardship and layoffs and seriously tough choices — will fuel a turnaround. Right now with unemployment rising, it is hard to remember that capitalism is a creator of jobs, companies, and industries — as well as a destroyer. But I see signs of growth to come. Signs of promise that this recession will some day give way to a time of new investment and new jobs.

History shows us that between some of our worst financial panics, U.S. capitalism has built transcontinental railroads, U.S. highway systems, and the internet. The creative side of the story is hard to see in today’s moment. We’re in the middle of the crisis, and growth stories are just now putting down roots. Areas to keep your eyes open to are: bio tech, software, wireless internet, clean tech (solar and hybrid technology), fuel cells, unmanned aerial vehicles, stem cells, and regenerative medicine (that is growing back the finger you cut off or the liver you ruined).

I recently attended a conference, and one of the speakers noted that the real estate cycle is like the five stages of grief: Denial, Anger, Bargaining, Depression, and Acceptance. While I agree with wholeheartedly, I think these four quotes sum up the cycle even better.

Stage 1: “You’re wrong about the market. My property’s worth more than you’re telling me it’s worth.”

Stage 2: “OK, I agree that the market has changed. But I still won’t sell my property unless you can get me more for it than what other people have already offered me for it.”

Stage 3: “We need to sell this property. Where do we need to price it in order to unload it?”

Stage 4: “I don’t think we’re ever going to see another great real estate market again.”

And Stage 4, of course, represents when we’ve probably hit the bottom of the market, and it’s the best time to begin buying properties again.

Being as this is my third downturn, let me give you my first piece of advice. If you color your hair, stop it. We need all of that grey hair experience now! In an attempt to benefit from the collective whole of the over 1,000 readers of my monthly letter, I would like to ask you to e-mail me your ideas and past experience and successful strategies in these kind of times. Help add to my list (10 things smart people did in the last downturn).

Buy with positive leverage (cap rate higher than interest rate).
Buy A+ properties at distressed prices.
Buy notes from lenders and foreclose and obtain underlying asset.
Buy freeway visible sites
Give me your experiences

I will compile these and e-mail them back out. Remember, Together Everyone Achieves More (TEAM). The rally cry now is to survive, to thrive!

Once again as you read the story that follows this letter, I ask you to remember the power of the “pen.” (a different kind of “pen”) Also remember that Thomas Paine said, “I love the man that can smile in trouble, that can gather strength from distress, and grow brave by reflection.” Better yet, my favorite — “Annoy your government — work, succeed, and be happy!”

Regards,

Don

Don S. Zech
CDC Commercial
Real Estate Services

Do you know how to catch wild pigs?

You catch wild pigs by finding a suitable place in the woods and putting corn on the ground. The pigs find it and begin to come every day to eat the free corn. When they are used to coming every day, you put a fence down one side of the place where they are used to coming. When they get used to the fence, they begin to eat the corn again, and you put up another side of the fence. They get used to that and start to eat again. You continue until you have all four sides of the fence up with a gate in the last side. The pigs, which are used to the free corn, start to come through the gate to eat that free corn again. You then slam the gate on them and catch the whole herd. Suddenly the wild pigs have lost their freedom. They run around and around inside the fence, but they are caught. Soon they go back to eating the free corn. They are so used to it that they have forgotten how to forage in the woods for themselves, so they accept their captivity.

Monthly Letter & Gold Report

2009-01-13T08:49:00.000-08:00

January 26, 2009

RE: Monthly Letter & Gold Report

Dear Clients:

“If you don’t read the newspaper you are uninformed; if you do read the newspaper you are misinformed.”

~ Mark Twain

It is my hope that you are neither uninformed or misinformed after reading this years CDC Commercial Gold Report 2009 — a silver lining…your mileage may vary.

(If you have any problems, just e-mail me, and I will e-mail a copy to you. If you prefer a mailed copy simply let me know.)

I am pleased to present you with our 13^th annual forecast report. Since the Gold Report will give you plenty to read, I will keep this month’s letter short.

As I have mentioned to many of you, the last quarter of last year was perhaps the worst I have seen in 25 years in the business. On a positive note, we have seen a small bump up in activity since the first of the year. I am hoping we can convert this activity to deals and gain some traction in this market. My New Year’s motto is, “Fixing the market one deal at a time.”

I would also be remiss if I didn’t tell you that I am getting lots of calls from landlords and property managers telling me that tenants are crying, failing, and asking for rent concessions. Here is some of the advice I’ve been giving out.

Do almost anything to retain good existing tenants.

Make concessions small, short term, and try to simply defer the concession to the end of the lease or later in the term, i.e., give a rent reduction for 6 months but tack it on to the end of the term.

Try to get something in return for the concession.

have them extend the term or exercise option early.

eliminate an onerous option from the future (make a fixed rate option a market rate option).

get a unilateral right to terminate with 6 months notice so you can re-tenant later.

can you barter with the tenant for their product or service (i.e., free meal every week from your restaurant tenant)?

Try to avoid any permanent or long term rent cuts. This hurts value. Give free rent, deferred rent, or short term reductions.

Make sure you get into their books and business. Understand what is really happening to their business and why they can’t pay rent. What event will allow them to pay full rent again? Do they have a manageable plan to get there?

Be flexible but firm.

If you are not able to retain the tenant and will have to legally serve them a 3-day notice, you will no longer be able to use the Sheriff’s department as we have for years — another casualty of budget cuts. You will now need to use a private process server like:

Vista Courte Services — 888-838-8845

Buena Vista Process Server — 760-758-1669

I thought you would enjoy this list of the six phases of our economic cycle:

Enthusiasm.

Disillusionment.

Panic.

A search for the guilty.

The punishment of the innocent.

Praise and honor for the politicians.

Despite the humor above, it is time once again for our great nation to stop being red and blue and once again be Red, White & Blue!

I hope you enjoy this year’s Gold Report.

Regards,

Don

Don S. Zech

CDC Commercial

Real Estate Services

December 2008

2008-11-13T08:48:00.001-08:00

December 1, 2008

Re: Monthly Letter – Holiday Letter

Dear Clients:

What a year! We’ve gone from a time where anybody could get a loan to a point where it seems nobody can get a loan! We at CDC Commercial are scanning the horizon for new opportunities and solutions to age old problems. We continue to work hard to bring you transactions we believe in. Deals that are worthy of both your time and investment. We like to say that we live at the intersection of problems and solutions.

I have told many of you this is the worst and fastest drop off I have seen in over 23 years. Our inbound call volume has dropped by 30%. There are days we have more calls from landscapers or contractors looking for work than we do from tenants looking for space! We are finally on the other side of the election and expectantly waiting to be on the other side of the financial meltdown. The TARP program is in place but the only tarps I’ve ever seen work cover things up! There is no limit to the amount of funds that Congress and the President can spend. The ultimate burden is borne by the taxpayer, either directly in higher taxes, or the reduction of purchasing power through inflation.

I will tell you that since the election people have become more decisive. Unfortunately, many more tenants and buyers are saying “no” but at least we’re not hearing “maybe” or “we’ll see”. Our job as brokers now is to weed through all those “no’s” and find the “yes’s”. There are people who want or need to do business right now and it is our job to find them.

The best commercial real estate brokers are, first and foremost, excellent communicators and impeccably honest. They negotiate with confidence yet never forget the emotional implications of a sale or lease. The best brokers are flexible and creative yet practical. They respond to challenges quickly, deliver disappointing news gently and never lose sight of those pesky details that can loom large if left undone.

Truly, brokers need to be nearly superhuman! With typical aplomb, the best salespeople don’t linger on this fact. They just go out and do the work, day in and week out. Perhaps that dedication is most important of all. Some say “passion” is an overused word. However, it is critical in commercial real estate sales and leasing. Passion – not money – is the fuel that keeps us going and is the thing that pulls us out of bed each morning

We are in the midst of a worsening economy that threatens vulnerable families. As we count our blessings this Holiday season, I would like to draw your attention to Interfaith Services. Interfaith is a nonprofit that has been helping people help themselves for more than 25 years. We helped more than 28,000 people in extreme need this year and demand is growing. 90% of every dollar given goes directly to those in need. Interfaith partners with over 400 faith communities to help those in our community in need. I am on the Board of Interfaith and will be helping on Christmas Eve to serve in the soup kitchen. If you can or want to help by donating food, support a housing unit, or make a donation call me or go to their website www.interfaithservices.org.

And while you are filling out your Holiday cards this year, add one to the following address for recovering soldiers:

Holiday Mail for Heroes
PO Box 5456
Capitol Heights MD 20791-5456

And finally, a great big thank you and blessing to you and your family. It is during times like these that we appreciate our clients and their enjoyment of the company of people who understand them, and who appreciate their goals, values, and passion for life’s important matters.

I hope you enjoy this year’s Christmas Story and appreciate the freedom we have.

Happy Holidays!

Regards,

Don

Don S. Zech

CDC Commercial

Real Estate Services

I put my carry-on in the luggage compartment and sat down in my assigned seat. It was going to be a long flight home for Christmas. Just before take-off, a line of soldiers came down the aisle and filled all the vacant seats, totally surrounding me. I decided to start a conversation. ”Where are you headed?” I asked the soldier seated nearest to me. “Chicago - to Great Lakes Base. We'll be there for two weeks for special training, and then we're being deployed to Iraq.”

After flying for about an hour, an announcement was made that sack lunches were available for five dollars. It would be several hours before we reached Chicago, and I quickly decided a lunch would help pass the time. As I reached for my wallet, I overheard the soldier ask his buddy if he planned to buy lunch. ”No, that seems like a lot of money for just a sack lunch. Probably wouldn't be worth five bucks. I'll wait till we get to Chicago.” His friend agreed. I looked around at the other soldiers. None were buying lunch. I walked to the back of the plane and handed the flight attendant a fifty dollar bill. ”Take a lunch to all those soldiers.” She grabbed my arms and squeezed tightly. Her eyes wet with tears, she thanked me. ”My son was a soldier in Iraq; it's almost like you are doing it for him.” Picking up ten sacks, she headed up the aisle to where the soldiers were seated. She stopped at my seat and asked, “Which do you like best - beef or chicken?” “Chicken,” I replied, wondering why she asked. She turned and went to the front of plane, returning a minute later with a dinner plate from first class. ”This is your thanks.”

After we finished eating, I went again to the back of the plane, heading for the restroom. A man stopped me. ”I saw what you did. I want to be part of it. Here, take this.” He handed me twenty-five dollars. Soon after I returned to my seat, I saw the Flight Captain coming down the aisle. When he got to my row he stopped, smiled, held out his hand, and said, “I want to shake your hand.” Quickly unfastening my seat belt I stood and took the Captain's hand. With a booming voice he said, “I was a soldier, and I was a military pilot. Once, someone bought me a lunch. It was an act of kindness I never forgot.” I was embarrassed when applause was heard from all of the passengers.

Later I walked to the front of the plane so I could stretch my legs. A man who was seated about six rows in front of me reached out his hand, wanting to shake mine. He left another twenty-five dollars in my palm. When we landed in Chicago I gathered my belongings and started to deplane. Waiting just inside the airplane door was a man who stopped me, put something in my shirt pocket, turned, and walked away without saying a word. Another twenty-five dollars!

Upon entering the terminal, I saw the soldiers gathering for their trip to the base. I walked over to them and handed them seventy-five dollars. “It will take you some time to reach the base. It will be about time for another sandwich. God Bless You and Merry Christmas.” Ten young men left that flight feeling the love and respect of their fellow travelers. As I walked briskly to my car, I whispered a prayer for their safe return. These soldiers were giving their all for our country. I could only give them a couple of meals. It seemed so little...

As we fret over our share of the US debt and if we’ll have enough money for Christmas just remember that “a veteran is someone who, at one point in his life wrote a blank check made payable to 'The United States of America' for an amount of 'up to and including my life.' That is Honor, and there are way too many people in this country who no longer understand it.''

May God bless you and may you have a safe Holiday and a Happy New Year!
Don, Candy & Nick Zech, Nancy Murphy, Rob Pew, & Rebekah Jones
CDC Commercial

November 2008

2008-11-13T08:48:00.000-08:00

November 3, 2008

Re: Monthly Letter

Dear Clients:

“…public credit depends on public confidence… The financial crisis in America is really a moral crisis, caused by the series of proofs …that the leading financiers who control banks, trust companies and industrial corporations are often imprudent, and not seldom dishonest. They have mismanaged…funds and used them freely for speculative purposes. Hence the alarm of depositors and a general collapse of credit…”

These words were written on November 2, 1907

The mortgage securitization idea is not a new one, in fact it has been tried and failed six times from the Civil War to World War II.

A year ago we paused as we watched the homes in our neighborhoods burn. This year we again took pause as we watched our hard earned savings burn on Wall Street. The ugly thing is that the federal government providing the “solution” is the same entity that has been asleep at the wheel while Freddie, Fannie and the Investment Banks stole us blind. I find it fascinating that on the way up we espouse free enterprise, but socialism is the preferred method on the way down. If there is a silver lining in this mess it is that we are wringing out the inflation/oilflation that was creeping into our system. As I tell my wife, the good news is I’ll be able to afford to drive my SUV to work. The bad news is that I’ll have to drive it to work for another 25 years so I can afford to retire!

It is time to think and rethink. Will you exploit this situation or will the situation exploit you? Buy low, sell high is still a good idea. A penny saved is more than ever a penny earned. A fool and his money are soon parted (although they may be reunited in a government bailout). Warren Buffett has a simple rule, “Be fearful when others are greedy and be greedy when others are fearful.”

Some of you thought I was crazy when last month I said we were nearing the bottom (I said bottom, not end). Now it is time to look for a solid uptick. Residential has started to show promise with less foreclosures, more houses sold etc… However, that trend may reverse for a little longer due to this month’s financial crisis. The commercial market was going to make it through relatively unscathed, but tight credit and tight-wad consumers will now impact commercial more. Remember that the stock market is about a six month leading indicator…so they’ve already voted for President. I still say we’re at the bottom and while I thought the turn was going to be by May 2009, I think it is closer now to this time next year.

It is easy to give in to excessive pessimism these days. But the US model – based on productive labor, free trade, fewer rules, lower taxes and rewards for entrepreneurial effort – is still sound. We’ll soon emerge stronger and better for our current tribulations.

We’re now entering an age of accountability. People now pay attention to quality, not just throw their money at junk. Banks are loaning their money (not Wall Street’s), automakers are selling cars – not financing. And we’re in the real estate business, not speculators.

At CDC, we’re looking at this time as if we’re in “the red zone” in a football game. We’re expending exceptional effort to find and push deals across the goal line. We are now in a time where Buyers and Tenants are king again. For us, negotiation is back in style. Now, more than ever, it is time for all of us to keep our eye on the ball.

Below you will find a story my dad gave me 20+ years ago that his dad had given him in the 1930s. We’re glad to have you as our customer and continue to strive to bring customers to your properties.

Regards,

Don

Don S. Zech

CDC Commercial

Real Estate Services

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 an 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, when 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 – than 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 businessmen 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.

October 2008

2008-10-13T08:47:00.000-07:00

October 1, 2008

Re: Monthly Letter

Dear Clients:

As you know, I often say that as a salesman I’m paid to be an optimist. So I tend to look for the silver lining in most clouds. It’s just hard this month to think of much good to say about this economy and I can’t see clearly enough to tell you when the carnage will end. Through all the smoke and clouds and distressed voices of the financial battlefield, I hope to give you some pause for thought.

First, what is the word for an “un-bubble”? It appears that we have a vacuum of optimism. People are irrationally depressed. Granted, we are in the midst of the greatest realignment of the US financial system ever in history. The greatest question is will they be successful in saving your street or only Wall Street?

At no time in commercial real estate has it been more difficult to nail down trends. We are seeing repricing of debt and equity. The market place is influenced more by fear and panic than by underlying fundamentals.

The precedent here is terrible. Investors got paid not based on what they owned but by who they were. Sophisticated overseas central banks and investment funds got paid back 100% because the Fed and Treasury were scared of the impact of paying them less. Freddie, Fannie and Washington had allowed foreign investors to think their investments came with a US government guarantee. As in most of life, perception becomes reality and you and I as tax payers are funding the guarantee. Now the good news: avoiding the meltdown should lead to a more rapid recovery in the real estate market, a rebound in economic growth and an eventual surge from a rebuilt banking sector.

The Fed and the Treasury have no choice but to keep interest rates low until the current liquidity problems are under control. Not to do so would result in a steep recession and a threat of a financial panic. Yet, keeping rates down risks damage to the economy from high inflation. My best guess is that once the financial markets stabilize, the Fed will have to make up for lost time by raising interest rates.

Now for my GIGANTIC prognostication! While many out there are asking, “When will the other shoe drop?” (commercial real estate crash), I am going to ask – “Is it not possible we are at the beginning of a new bull market in real estate?” How many times have you heard, “You make the big money when you buy it right.”? Most people don’t notice when a market changes until it is too late to capitalize on. John Templeton, the founder of Templeton Mutual Funds, said, “Bull Markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.”

I saw this right after 9/11. If you go back and see when the last boom got its toe hold, it was after the dot.com bubble meltdown. Then 9/11 happened and the next thing we were on a wild ride. Why? Because the public became concerned with this world and where this country was headed. We saw firsthand how easy it was to lose a fortune. People want something tangible. It is a lot easier to understand real estate than a CDO, CMBS or derivative with risk traunches. If this is true, then maybe the recovery has begun and we have been beaten down enough by the media and other finance gurus not to notice.

Think about these numbers:

· San Diego unemployment was at 6.4% in August, down from 6.5% in July

· Housing sales for July were slightly ahead of August 2007 levels

· New building permits for San Diego increased in August to 672 units, up from 437 in July and 451 in August 2007.

· There were 13.7% less houses for sale in September 2008 than in September 2007

· CEO confidence has increased for the first time since 2^nd quarter 2007 according to San Diego based Vistage

· California Employee Confidence Index increased in August for the second month in a row.

· 48% of new home buyers were able to afford an entry level home compared to 24% a year ago

In the same Vistage survey mentioned above, you can see why business and politics don’t mix. CEO’s were asked which candidates – McCain, Obama, Biden or Palin – they would select to run their company. 49% said none, 29% chose Palin, McCain got 10%, Obama 8% and Biden 4%.

I hope in this down market you realize, like we do, that you need good salespeople to gain good relationships with tenants and buyers. I hope that the Optimist Creed posted at the end of this letter reminds you of why we’re paid to be optimists.

Regards,

Don

CDC Commercial
Real Estate Services

The Optimist Creed

Promise Yourself -

· To be so strong that nothing can disturb your peace of mind.
· To talk health, happiness and prosperity to every person you meet.
· To make all your friends feel that there is something in them.
· To look at the sunny side of everything and make your optimism come true.
· To think only of the best, to work only for the best, and to expect only the best.
· To be just as enthusiastic about the success of others as you are about your own.
· To forget the mistakes of the past and press on to the greater achievements of the future.
· To wear a cheerful countenance at all times and give every living creature you meet a smile.
· To give so much time to the improvement of yourself that you have no time to criticize others.
· To be too large for worry, too noble for anger, too strong for fear, and too happy to permit the presence of trouble.

-Optimist International

September 2008

2008-09-13T08:46:00.000-07:00

September 1, 2008

Re: Monthly Letter

Dear Clients,

Well as the Olympics wrap up, the kids go back to school, and the Presidential battle heats up, I must say I am looking forward most to football season. There seems to be no substitute for the joys created within our families, friends, co-workers and community as we rally behind the competition of our local high school, college and professional teams. As “our” teams compete we seemingly live and die by those pass completions, fumbles and goal line stances. We relish in the competition even if it is from the arm chair or sofa.

We as Americans need to pay attention to our competitive attitudes and make sure they are not stuck to only the sofa. As I watched the Olympics it was amazing to watch as many of the Worlds’ nations competed and routinely win medals. The Chinese with over a 25% increase in Gold medals from 4 years ago! The Spanish competing very evenly with our own NBA all star team. We’re starting to run out of time and excuses as the world gains on us. They copy our productive methods and then compete with us. We must always be improving.

The way out of this poor economic time is to innovate (to do this we must all be life long learners) and lead. To lead we must compete in global markets. We need to export Capitalism, “Buy American” was the cry of protectionist, but now we really want the world to “Buy American” not just the U.S. We’ve got to be smarter than the competition!

The National Education Association (NEA) in a recent report showed that a high school drop out earns about $260,000 less over their lifetime than a high school graduate. In our society that adds up to a loss of 1.6% of our GDP. If that does not concern you enough, how about the fact that 80% of individuals in prison don’t have a high school diploma!

Closer to home, I am seeing some interesting returns to the way things once were. Banks are now chasing deposits so as to have the capital to lend. Furthermore, banks are back to following the basic principals of banking – “don’t lend money to people who can’t pay it back.”. The car leasing market is also drying up as big car values plummet forcing more people back to owning their cars again.

High gas prices are having severe/significant impacts. First higher energy costs are acting as a tax or equivalent to an interest rate bump effectively slowing our economy across the board. Locally, we are seeing more businesses looking to locate closer to home. This trend will bode well over the long haul for the North County office market. With consumers trying to consolidate their driving trips, tenant mix and synergy are more important in retail centers than ever. Can you get the groceries, drop off the video and pick up tonight’s dinner all in the same center?

We’re hearing more and more stories of tenants struggling. Our recommendations are as follows:

1. Renew tenants early – make sure they stay committed to your location.

2. Offer incentives to renew – no increase for the first year or new carpet and paint.

3. Work to hold your rents – that way you won’t be stuck with low rents when things turn around.

4. On new deals be flexible with free rent, TI allowances, stepped rent.

In the middle of August, Alan Greenspan said the bottom of the real estate correction will occur in the first half of 2009 and the recovery process will then commence.

I believe that to be true. As I said in the beginning of the year, things will remain stagnant until after the election. After which the markets will start placing their bets and moving forward.

San Diego’s strong economic fundamentals and demographics make it an excellent market for long-term investment opportunities, as well as an attractive tenant location compared to other areas of the country…or for that matter, the world.

Given that school is starting, as is football, and my cry for us all to be life long learners and competitors in our marketplace, I thought you’d enjoy the story below.

Regards,

Don

CDC Commercial
Real Estate Services

What Would Happen If…

We Ran Our Football Teams As We Do Our Classrooms:

Everyone would have the right to equal playing times so that all could develop their athletic skills equally

Cooperation would be more important than excellence. Competition would be frowned upon.

Since star athletes are already talented, they would not need special coaching or conditioning. They could help teach other athletes since “to teach something is really to learn it”.

We could “coach to the middle”.

We would strive to develop well-rounded athletes. Thus, the star quarterback would take a turn sitting on the bench as a trainer. The student of lower analytical skills would get a turn as quarterback. The out-of-shape student who hates physical activity would get the opportunity to play running back.

Coaches would be expected to understanding when jobs, family trips or homework interfered with practice time by adapting game plans to accommodate much multiple interests.

Coaches would be assigned parking lot supervision duty immediately before and after games and during half-time. If athletes had questions about game plans, they could meet with coaches in the parking lot. Coaches would have to plan their plays before or during supervision duty.

Coaches could not demand too much of students lest they create stress or interfere with many other interests and priorities.

If the team had a losing season, new philosophies of coaching would be developed. Each new philosophy would discard all previous philosophies. It would require a two-hour training session and supply the coach with a pocket folder crammed with philosophy and objectives. Coaches could plan their strategies between supervision duties and games.

We Ran Our Classrooms As We Do Our Football Teams:

Teachers would walk into class enthused and fired up with the importance and relevance of what they were teaching.

Students would be in class because they wanted to learn and they would respect the teacher and put all their energy into the class. Class would be more important to them then their jobs or football practice.

Parents would jam the schools asking the teacher how to help their students excel.

Students wouldn’t dare miss class or skip doing homework lest they be dropped from the academic team.

Students would develop a sense of teamwork and cooperation fueled by their love of learning and challenging of each other. Students would take pride in their classes and demand that classmates give their best.

Students would clamor to be “student of the week” or make the honor roll. Other students, teachers and the community would enthusiastically and supportively be involved in student learning.

We would have rallies and bands and cheerleaders for National Merit Scholars and honor students, and they would not feel uncomfortable about receiving the attention because this would be every student’s dream.

Every night the 10 o’clock news would devote a full 10 minute segment to education issues and highlights. The morning radio stations would compete for the education audience.

Newspapers would devote several pages (or a whole section) complete with pictures to academic activities.

We would demand excellence in the classroom and teach cooperation and patience on the playing field.

Our society would clamor to build and equip learning facilities because everybody would recognize the value of well-educated citizens to the business community.

August 2008

2008-08-13T08:45:00.001-07:00

August 1, 2008

Re: Monthly Letter

Dear Clients:

“Opportunity is missed by most people because it is dressed in overalls and looks like work.” – Thomas Edison

While the subprime mess of last summer largely caused turbulence on Wall Street, the ongoing credit crunch exacerbated by oil inflation has spread to Main Street. Higher oil prices and the difficulty of getting people and properties qualified is having the same effect as if the Fed has jacked up interest rates.

The scary thing right now is that despite oil inflation and a slowing economy (remember our Gold Report predicted “Stagflation” as the most likely event in 2008) interest rates have no where to go but up. The Feds interbank rate is 2%. When you take inflation into account the interest rate on Fed funds is negative (1% - 2.5%)! Yes, they are giving away money! Two things you should realize, 1) If you can qualify you should be buying, borrowing or refinancing. 2) The longer they hold rates down the worse inflation will be and the higher they will have to raise rates. Remember that if you have been waiting the last two years for commercial properties to go down they have – by at least 10% (prices have been flat but 5% per year inflation has quietly raised prices).

It is time to be long and strong. We’re nearing the end of the lowest rates we’ve seen in 45 years. Time to lock in to 10 year “no brainer” rates. We are in or will be in a recession along with inflation. Rates will have to rise to stop the inflation. When the recession is over and values go back up you’ll be happy with your fixed rate low interest rate loan. If inflation stays you will at least keep pace with it so long as you have expense pass throughs and CPI increases. It’s not just the throw back clothes my kids are wearing, we’re re-entering the ‘70’s, but this time we’re on steroids!

To give you some mid-year perspective, I thought I would share this summary of current conditions.

Retail – High gas and food costs are eliminating much of peoples’ discretionary income which is directly impacting sales. Previously we had warned to be watchful of your real estate & furniture tenants. It is now spilling into food & restaurant uses. Energy costs are driving more sales to the internet. Talk to your tenants about increasing their internet presence. Higher operating costs are impacting bottom lines and will affect your net operating income (NOI).

Office – Slower economic times are having the usual impact on office space demand. Higher operating costs are squeezing NOI’s. Be sure your leases have expense pass through protection and CPI increases. The silver lining of high gas prices is that more tenants are looking to locate in North County, closer to home and a shorter drive. However, it is killing tertiary new home markets (south Riverside County, El Centro, etc…) where people used to “drive until you qualify”. As more people use the internet to telecommute and collaborate online this impact will be lessened.

Industrial – The weak dollar is driving export growth and transportation costs are causing a rethinking of distribution networks, keeping industrial property fairly healthy.

Despite all the bad news you should know that San Diego is tied for 8^th place for top markets to grow in population according to Claritas. It is also the #2 retail market in the nation according to Shopping Center Business Magazine. On the bad side we are the #9 market for housing foreclosures (1 in every 74 houses). However, to put it in perspective, I saw the June report of REO’s (bank owned) for San Diego and it was 110 pages long (3 per page). The commercial REO’s for San Diego was one page with 2 properties.

I have to say I hate the new Bluetooth law. I have had more close calls this month than in my entire life as I use both hands to mate my two devices, or search for the devise while the phone is ringing or worse yet, try to drive with my head below the dashboard on the days I forgot the Bluetooth in the office. The good news is once I get it all down I’ll have two hands free so I’ll be able to do more when I drive like shave, eat or look at stuff on my laptop!

My hats off to the City of Lake Elsinore who took away the credit cards for all of their elected officials. They replaced them with debit cards pre-loaded with their spending limits. Maybe this trend will spread to Washington and our Nations budget!

As we all try to save gas by sending more emails, we are ever increasingly using the PDF format. Many of you are using old versions back to Adobe 5 or 6. The current version is Adobe 9. It is available for a free download/upgrade on our website www.cdccommerical.com (on lower left corner)

As I prepare for my second to go off to college and my youngest to enter high school I am very pleased with the way my life has been blessed. However, next time I might consider doing it backwards as expressed below.

Regards,

Don

CDC Commercial
Real Estate Services

Next Time…I want to live my life backwards:

You start out dead and get that out of the way. Then you wake up in an old age home feeling better every day. Then you get kicked out for being too healthy. Enjoy your retirement and collect your pension. Then when you start work, you get a gold watch on your first day. You work 40 years until you’re too young to work. You get ready for High School: drink alcohol, party, and you’re generally promiscuous. Then you go to primary school, you become a kid, you play, you have no responsibilities. Then you become a baby, and then…you spend your last 9 months floating peacefully in luxury, in spa-like conditions – central heating, room service on tap, and then…you finish off with a climax.

June 2008

2008-08-13T08:45:00.000-07:00

June 2, 2008

Re: Monthly Letter

Dear Clients:

I did it! Those of you who were reading my letter two years ago will remember when I turned 45 I promised to run a marathon. Well, 3 foot surgeries, a couple of 10 pound weight swings (off/on/off again), no more caffeine and two kids off to college (2 still to go), and I can finally say I have reached a life long goal of running a full marathon – 26.2 miles (The San Diego marathon was yesterday, June 1)!

Well the current market is starting to wear on us like a marathon. We’re continuing to see tenants throw in the towel or hang on by the skin of their teeth. The high cost of oil/fuel and its impact through the supply chain is having far more impact than sub prime mortgages, interest rates or the overall economy. Average occupancy costs for retail tenants run about 10% of sales. A recent survey showed that 50% of retailers exceeded that benchmark. Ten percent of retailers report their occupancy costs are running 15% of sales. The solution? Lower occupancy costs (rents & expenses) or raise sales or prices. Only the future knows how we are going to bridge the gap. If I have to bet, it will be higher prices.

If you think prices are insane now, you’re right. However, insanity is becoming the new “normal”. We are entering a “scarcity economy”. In normal supply and demand markets you raise prices, demand falls off and prices plateau. Unfortunately, when demand does not fall off with higher prices, buyers fear that there won’t be enough supply at any price and this is what causes hoarding, price spikes and wage/price spirals.

While we’re talking about zooming ahead, The U.S. Senate approved $45 million of funding for a proposed levitating train between Disneyland and Las Vegas. Eventual cost is projected at $12 billion but imagine a 2 hour train ride between SoCal and Vegas!

Closer to home, all owners should be aware that all the cities/municipalities have been mandated to reduce storm water runoff. What that means to you is that on every Tenant Improvement job you will be “held hostage” to make some improvements toward reducing storm water runoff (this is much like how the ADA improvements are extracted now). Some of the most common upgrades required are; covering dumpsters with roofed enclosures, re-directing drainage into planter beds, re-doing roof or drainage lines.

What we are observing now in the market is an uncomfortable equilibrium; not much demand and not much supply. During this challenging environment we are finding the value of our services to be rising. Our clients are benefiting from our knowledge and experience as they navigate their path. Interestingly enough, our numbers through April at or better than the last two record years!

I will be out of town the last week and a half of June re-charging my batteries on a Caribbean cruise with my family. During that time I am confident that the rest of my team will hold down the fort and take good care of you and your property.

If you are looking for some summer reading for your vacation feel free to view and order from my reading list at: www.cdccommercial.com/Don’sReadingList

Despite being tired of drudging forward and fearful of the insanity around us, you should already know that worrying about it will solve nothing. That’s why I think you will enjoy the quote below.

Regards,

Don

Don S. Zech
CDC Commercial
Real Estate Services

Why Worry?

In life there are only two things to worry about:
Either you are well, or you are sick.

If you are well,
there is nothing to worry about:
If you are sick,
there are only two things to worry about:
Either you will get well, or you will die.

If you get well,
there is nothing to worry about.
If you die,
there are only two things to worry about:
Either you will go to Heaven, or you will go to Hell.

If you go to Heaven,
there is nothing to worry about.
If you go to Hell,
You’ll be so damn busy shaking hands with your friends, you won’t have TIME to worry!

July 2008

2008-07-13T08:46:00.000-07:00

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July 2008

July 1st, 2008 1:16 PM

July 1, 2008

Re: Monthly Letter

Dear Clients:

Happy 4^th of July. I hope you are one of those consumers of the 150 million hot dogs that will be eaten over this weekend.

Having just come off a 10 day vacation, I have to say I don’t have a lot to report, but I certainly have a lot to get caught up on!

After having traveled both inside and outside of the country, I do think Sam Zell (real estate tycoon & billionaire) has it right not only when he says that “real estate markets are slowly recovering” but also when he speaks about International investors. “After they get through bashing George Bush, the very next question is, “Where’s my Visa?”. There is not another environment in the world that matches the US in terms of opportunity, creativity, acceptance of change, acceptance of failure”.

UCLA, Anderson Forecast reports that despite housing price drops, foreclosures will taper by early 2009. However, the office market is expected to add 2.4 million square feet with as much as 3.2 million proposed. Unfortunately San Diego is only expected to absorb 1 million square feet a year in the foreseeable future.

Grocery store sales have dropped 20% over the last 12 months. However, sales should strengthen in a slower economy and higher prices as consumers prepare more meals at home. McDonald’s is jumping on the coffee bandwagon by adding coffee bars in all of its restaurants.

On the investment side transaction volumes have dropped but pricing remained relatively stable, with about a 3 – 5 % price reduction. Where things go from here will be dependent on credit markets over the next few quarters.

I believe Fed Chairman Berninke’s strategy continues to be to cause enough confusion and regulation to cause markets to slow down, yet not require him to do as much with rates. This is why we face low rates with big spreads and stricter underwriting.

As I said in last month’s letter, tough markets make tough agents and we are finding our skills in great demand. As Floyd Whickman puts it, adversity can be an anchor or a rocket booster, depending on your attitude and your actions.

No matter where you stand on the Presidential election you have to appreciate the attached Pledge of Allegiance by Senator and former POW John McCain. Happy 4^th!

Regards,

Don

CDC Commercial
Real Estate Services

"The Pledge of Allegiance" - by Senator John McCain

As you may know, I spent five and one half years as a prisoner of war during the Vietnam War. In the early years of our imprisonment, the NVA kept us in solitary confinement or two or three to a cell. In 1971 the NVA moved us from these conditions of isolation into large rooms with as many as 30 to 40 men to a room.

This was, as you can imagine, a wonderful change and was a direct result of the efforts of millions of Americans on behalf of a few hundred POWs 10,000 miles from home.

One of the men who moved into my room was a young man named Mike Christian.

Mike came from a small town near Selma, Alabama He didn't wear a pair of shoes until he was 13 years old. At 17, he enlisted in the US Navy. He later earned a commission by going to Officer Training School Then he became a Naval Flight Officer and was shot down and captured in 1967. Mike had a keen and deep appreciation of the opportunities this country and our military provide for people who want to work and want to succeed.

As part of the change in treatment, the Vietnamese allowed some prisoners to receive packages from home. In some of these packages were handkerchiefs, scarves and other items of clothing.

Mike got himself a bamboo needle. Over a period of a couple of months, he created an American flag and sewed it on the inside of his shirt.

Every afternoon, before we had a bowl of soup, we would hang Mike's shirt on the wall of the cell and say the Pledge of Allegiance.

I know the Pledge of Allegiance may not seem the most important part of our day now, but I can assure you that in that stark cell it was indeed the most important and meaningful event.

One day the Vietnamese searched our cell, as they did periodically, and discovered Mike's shirt with the flag sewn inside, and removed it.

That evening they returned, opened the door of the cell, and for the benefit of all of us, beat Mike Christian severely for the next couple of hours, and then they opened the door of the cell and threw him in. We cleaned him up as well as we could.

The cell in which we lived had a concrete slab in the middle on which we slept, four naked light bulbs hung in each corner of the room.

As I said, we tried to clean up Mike as well as we could. After the excitement died down, I looked in the corner of the room, and sitting there beneath that dim light bulb with a piece of red cloth, another shirt and his bamboo needle, was my friend, Mike Christian. He was sitting there with his eyes almost shut from the beating he had received, making another American flag. He was not making the flag because it made Mike Christian feel better. He was making that flag because he knew how important it was to us to be able to Pledge our allegiance to our flag and country.

So the next time you say the Pledge of Allegiance, you must never forget the sacrifice and courage that thousands of Americans have made to build our nation and promote freedom around the world.

You must remember our duty, our honor, and our country

"I pledge allegiance to the flag of the United States of America and to the republic for which it stands, one nation under God, indivisible, with liberty and justice for all."