Home prices in IE fall from the previous year, will commercial space follow?

From Inman News,

DataQuick reported that sales fell from 23,005 in November 2006 to 13,173 in November 2007 for the six-county Southern California region, while the median price dropped from $485,000 to $435,000.Riverside and San Bernardino counties suffered the steepest price drops among Southern California counties. The median price in Riverside County fell 16.5 percent from November 2006 to November 2007, while the median price tumbled 13.2 percent in San Bernardino. San Bernardino led Southern California counties with a 48.1 percent year-over-year sales drop in November, followed by Los Angeles County with a 46 percent drop. The other four counties in the Southern California region also experienced year-over-year price drops.

While the sub prime mess has yet to be resolved, the effects on the commercial real estate market has started to rear its ugly head.

On the short term supply side of the equation is an increase in lending standards, the so called credit-crunch that you no doubt have been hearing much about lately. Lenders face a crisis of confidence as they try to balance sub-prime "write-downs" with their existing cash flow. Since these risky assets are difficult to price, lenders are scrambling for liquidity to meet their obligations. This is the closest thing I have seen to a traditional "bank run" and a lot of respectable large banks stand to lose a lot of money. This is an eerily similar scenario akin to the S&L crisis in the 1980's although I suspect the resolution of this crisis will be different; there will be no FDIC bailout of these large banks. I do suspect that government(s) will step in to ultimately resolve the issue, but how and when is still a mystery.

Unfortunately, what this means is that funds that normally would have been allocated to real estate investments will be put into other places, since anything associated with "real estate" now inspires panic and also because commercial real estate is a very illiquid asset. Even REITS (whose primary benefit is to make commercial real estate investing much more liquid) have seen a large downturn this year; the FTSE NAREIT Index is down -8% in November and returns are a dismal -20% so far for 2007.

The long term demand side of the equation is a recession. This downturn hits homeowners in the wallet, and a decrease in consumer spending lessens the demand for imports (industrial especially) and consumer goods in general (retail especially) and could ultimately lead to job losses (all property types).

But not to worry, the FED has been cutting interest rates to stall a recession and the US government is looking at ways to step in to freeze interest rates on mortgages using voluntary measures. The department of wishful thinking has been very busy locking the gates after the horses have run off and as the curtains close on 2007, we should all move to the concession stand for that pound of cure promised to us. 2008 looks to be a very interesting year and a good opportunity to purchase long term assets, the short term shake out looks like it has some steam in it yet.

Survival Guide to the Age of Information, Part I

Hello again,

I wanted to take some time and discuss how I see changes occuring in the business world in general and the commercial real estate field in particular. In talking with some of our older sales staff members it was immediately apparent that over the last 5 - 6 years this business has been turned on its head. Many realized that the tools of the trade were shifting right under their noses and that their clients were expecting more and more value-added measures to justify the commissions that we charge.

Providing the information is no longer sufficient; clients can now have access to much of the same information commercial brokers have at low cost or even free. With the upcoming recession, clients want greater assurance that the risks they have been taking are justified and clients are seeking the old-hand of an expert to interpret all the information coming at them from all angles.

For this reason, I felt a rough guide was necessary that spells out the changes I have witnessed and

Axiom 1: Data is now readily available where it was once scarce

The technology for acquiring information, the personal computer and the Internet, has opened up a world of possibilities for market researchers like myself and others whose profession depends on the currency of this new age; information.

Keeping track of the available data sources (and all the new data sources that aggregate information from the old sources) is one of my major job functions. Colliers subscribes to 17 different commercial and government sources and I personally have access to 134 different publications including newspapers national (and international) and local, trade papers and journals as well as a multitude of real estate and economics blogs.

Axiom 2: The technology for using data is anemic; there are few procedures for turning data into knowledge.

Sorting through my mountain of data, daily, is akin to drinking from a fire-house. It takes a skilled researcher to differentiate the vital information from the noise; 95% of all that is written is absolute drivel, the remaining 5% is actually useful and will pay dividends forever.

Axiom 3: Translating knowledge into sound decision making is the only thing worth paying for.

How information is used is more important than who has it. Data collection, processing, storing and retrieving facts is easy. Most of the time it can be bought from data vendors and it can also be obtained from those that maintain their own internal data sources.

Value comes from 1) interpreting and controlling the information flow 2) knowing which facts are necessary and useful and then 3) forming action plans around this data, overcoming "paralysis by analysis".


It is no longer enough to be an information provider, a gatekeeper, those days are over. There is too much competition for that. Being a value-added information aggregator and interpreter, an information-broker, these are the skills that will be in high demand.

Colliers In The Press: Founder Bill McHarg

Bill McHarg helped found Colliers in Australia in 1968. Since then, Colliers has grown from a modest company of real estate professionals into the third largest commercial real estate brokerage company in the world.

I work at Colliers, but I first learned about Bill McHarg from an NPR article I heard yesterday, the article is available here.

The point of the article isn't to highlight Bill's prowess in the commercial real estate field but rather to demonstrate the fervor in which Bill attacked Prime Minister John Howard on the basis of Mr. Howards failings in the green movement.

You can see Bill's commercial here.

For his efforts, Bill has lost his job at Colliers International, the company where I work.

For what its worth, I feel that it is really the company's loss and being fired will prove to be a huge positive for Bill. Being fired means that you are at odds with the company and the job isn't right for you.

Hopefully, one day the attitudes of this company will shift as the environmental movement gains traction and passes the tipping point into the mainstream. At that time all this confrontation will look silly and the marketing department will manage to spin Bill's fervor into a positive and all will be forgiven. Provided Bill hasn't started a rival commercial real estate company, a green commercial real estate company.

In my limited work experience here on this planet, it seems that nothing is more dangerous than people on a mission. Such people have ambition, which is more harmful than talent.

Talent can be squandered, or replicated, or out-sourced, but ambition carries with you and it is hard to break. Everyone wants to be good and good is easily attainable for those who can follow directions and be mediocre. But few are willing to make the sacrifices necessary to be great, it takes great ambition and a reckless spirit to try new ideas, your ideas, and to run with these ideas as if the devil himself is chasing you.

For most, making nice in order to be liked is more important than being great and great people are notoriously hard to work with. For one thing, great people are single-minded, reluctant to compromise and are driven by inner forces greater than what average people could ever comprehend.

This pursuit to do something well comes at great cost, but the benefits of working with and learning from someone great will outweigh these. You do not want to work for Mr. Average Nice Guy, not if you want to be great, not at any cost.

Since learning about the fate of Bill McHarg, I am proud to be working at the company that he founded, since this company was founded by great men.

At some point in the future, one where I am standing at my moral crossroads, I hope I will be able to follow my conscience.

Google Earth: San Gabriel Valley Population Projections

You can find a Google Earth mashup I created here. (The picture on the left is a screen shot). The height and color represents the population of each submarket and the different layers correspond to census data from 1990, 2000, as well as current population estimates (2006) as well as 5 year projections (2011 & 2016).

This information would normally be contained in a table or a chart but I feel that actually moving around and being immersed in the information has merit. If your presentation is digital vs. printed, interactive vs. single perspective, responsive vs. static and acts as a stepping stone rather than an end in itself, then you have stepped into the realm of "new media" (Which is the point of this blog).

All new products begin with false hopes (I.E. Segway) as well as a lot of unrealized potential. I think Google Earth will fall into the later category. It has not hit its stride yet, most people acknowledge its existence but don't know what it is for or how to bring it into their everyday lives. It is a visual curio and it seems that Google has created it just for the sake of creating it.

Until it hits the mainstream where everybody has Google Earth installed on their computer, and .kml files are as common as .doc or .xls, it will reside for the exclusive use of information hobbyists and technology geeks. It will happen though, I don't think this product will go the way of the Betamax.