Where Downward Pressure On Rents Comes From

From NREI:

The era of rapidly rising office rents that dominated the booming property markets in 2006 and 2007 has reversed course, giving tenants the upper hand at the bargaining table. In fact, New York-based research firm Reis expects a 7.4% drop in effective office rents this year after growing only 0.3% in 2008.

U.S. companies shed more than 4.4 million jobs between December 2007 and the end of February, according to Bureau of Labor Statistics. That has helped push the office vacancy rate to 14.5% in 2008 from 12.6% in 2007, according to Reis, which tracks 79 office markets in the U.S.

In 2006 and 2007, office rents grew 9% and 10.6%, respectively. Aware of the crumbling fundamentals, tenants are renegotiating virtually every lease deal that has been in the pipeline since last summer, brokerage executives say.

New York-based tenant rep Studley, for example, started working with a client midway through last year and initially anticipated a lease rate of $50 per sq. ft. The client recently signed for $28 per sq. ft., says Michael Colacino, president of the brokerage, who declined to name the tenant.

“It’s a harsh landscape, and if it wasn’t for the larger, gloomier context of the entire U.S. economy being troubled, I think people would take it a lot more personally,” he says. “But falling markets equal price discovery, and re-negotiation is the red-headed stepchild of price discovery.”

James Garibaldi, president of Chatham, N.J.-based service provider Garibaldi Group, says that office tenants are acting increasingly like retailers, who for several months have pressured landlords to renegotiate leases or downsize their space.

Garibaldi and other brokerage executives add that office tenants increasingly are delaying lease decisions. Uncertainty about the timeline for economic recovery is one reason, but tenants are also betting on further rent deterioration.

Ultimately, however, the lion’s share of tenants are choosing to renew rather than move, says Garibaldi, who is beefing up his tenant rep business.

“The decision process has become as excruciatingly long as any time in memory,” he adds. “Landlords have become increasingly aggressive, making for a far more competitive arena.”

Inland Empire Office Market In The Press

Pretty good article here from the Daily Bulletin

It all came together rather nicely to give an impression of what is going on and I am glad that the other commenter's in the article all agreed on the proper state of the market. It just means that the denial stage is over, and now the healing can begin.

As a researcher, I usually do not take it upon myself to sugarcoat everything and I hope my audience appreciates it.

What I see when I run the reports is a macro picture, there are a lot of little stories and individual players that all interact, and I only see a little snapshot.

This article was talked about in the Housing Bubble Blog, which tracks conditions across the country. So my snapshot is being put together with other snapshots to get a feel of the condition of the whole market.

Commodity Prices Take A Hit

From Purchasing Magazine:

Fewer things are being mined as the world works throughs excesses supply. When prices increase again, it is a sign that demand has returned and a recovery is on the way.

Pulse Of The Ports Recap - Part 1.

Hello, the 5th annual Pulse of the Ports forecast was this Wednesday and I finally allotted some time to discuss all the information that was presented. This year, the whole event was videotaped, but I have not seen it on their website yet http://www.polb.com/ so keep a lookout for that.

There is a lot of material here, so I will be breaking it into 2 parts.

Here are my notes and commentary about the event.

James Hankla, President of the Long Beach Board of Commissioners, started off by setting the tone of the event. There was an 11% decline in port volume last year, the sharpest decline in 20 years. With the decline in port volume, so goes jobs & businesses and Southern California needs an economic rebound and they need it quick.


I was actually pretty surprised that he came right out and said it. I was expecting him to pussyfoot around, talking up the ports green initiatives in order to deflect the economic question. I respect the man who can put business before politics.


Richard Steinke, the executive director of the Port of Long Beach, gave a brief history as to why this event was held in the first place. In 2004 cargo piled up suddenly and there was not enough workers or equipment to unload the vessels. Ships were waiting a week and this one event has tainted the port with the belief that it was congested. To combat these perceptions, they began offering these public meetings so nobody is caught off guard again.


The first speaker was Dr. Joseph Magaddino, Department Chair of Economic, Cal State Long Beach.


First we started with an overview of the recession, which started in December of 2007. What we are seeing is a global contraction of wealth, with the developed world in recession and the developing world seeing a much slower rate of growth. Global GDP is estimated to be down 0.5%, and marks the first time the entire world was in contraction since 1945. Already the situation we are in is a the longest recession in history.


Consumer confidence is the lowerst it has even been. 11 trillion in wealth was destroyed in this affair as home values and stock values have plummeted. Consumers are retrenching and consumption is down.


Part of the problem is that 1/2 of the goods consumed in the United States are imported. As American consumers cut back, we are essentially exporting the recession to our trading partners who came to depend on our high levels of consumption.


This global weakness has caused everyone to want to hold American dollars, since that is seen as the safest asset. Since oil is priced in dollars, the price of oil has plummeted as the dollar gained in strength.


The problem he sees is with the Federal Reserve creating liquidity to combat the credit crunch. At some point in time they are going to have to pull that money out of the system, otherwise we will have massive inflation once the economy rebounds.


He predicts that the worst part of the recession is now, the part we are currently in. Already we have lost around 4.3 million jobs and we can expect 3 million more before things turn around. Employment lags activity, and we have not seen an increase in economic activity yet.


He expects that port activity in December of 2009 to be higher than it was in 2008, the first sign of a possible recovery.


One of the reoccurring themes that all the speakers closed with was the need to improve infrastructure during the downturn so we are geared up and ready to go once the economy recovers.


The second speaker was Dean Tracy, Lowes Director of Import Logistics.


This guy was great. After his speech he had me seriously considering taking a career in logistics.


First, some of the facts about Lowes. It is the 7th largest importer in the country. They import about 103,000 FEU's (or 206,000 TEU's). They have 1650 stores and are planning on opening up 60-70 this year. This is about 1/2 as many stores as they did in previous years.


Lowes has 15 regional DC's and 3 transload facilities. They import about 30,000 40ft containers through LA/LB. Their DC in the Inland Empire services 126 stores and their transload facility here handles 500 stores.


Lowes handles most of their own distribution, only 25% of their merchandise comes from 3rd party providers.


He had nothing but good things to say about our IE industrial buildings and cross-dock facilities. The best in the country.


He did not expect a peak season this year. With 484 shipping vessels idle there is massive excess capacity at the ports now, and we are not at the bottom.


50% of the cargo that comes through the port is discretionary (it can go anywhere in the country). Most of the cargo that comes into the IE is discretionary, and when they raise the requirements and fees at the port, it is the IE that suffers the most.


In addition to the fees that the ports have (port security fee, Pier Pass, clean truck fee, infrastructure fee, Alameda Corridor charge and container fees) there is an added administrative effort that companies need to have in order to manage and pay all these fees (the fee payment fee).


To remain competitive, POLB needs to limit their fees and make it more attractive for shippers to work here. Otherwise they will ship things elsewhere.


George Adams - Institute of Scrap Recycling


Little preface, this is the owner of a large scrap metal recycling company which has 40 locations and handles 3 million tons annually.


Since Southern California has no steel mills, we have to export our scrap. Scrap metal is used first before it will be mined, because it is cheaper to scrap it then to mine it.


Scrap metal covers 40% of the worlds metal needs. The U.S. is the largest exporter of scrap in what is a $5 billion a year industry.

His scrap business is down 30% since last year.

At its peak, scrap was trading at $750 a ton. Then it crashed to about $200 a ton. It happened very very quickly, almost it mid shipment across the Pacific. When his scrap arrived to China there was nobody to pay for it. The contraction has led to unforeseen issues, such as him expanding his operations during the good times only to cut back in the bad.

The upside is that once all this infrastructure spending takes off again in the U.S. and China, the world will need metal again. He sees more scrap being sent by containers in the future rather than by bulk.

Peter Keller - President of NYK Line, (maritime shipper).

Things are getting back to the basics. 11% of the fleets are idle. Loading in Asia is down. This is not the bottom.

The good news is that inventories are being depleted. This will cause retailers to order more goods eventually rather than working off the limited supplies they have here.

His main point was that the bust hurt his company very badly and that current shipping rates are not sustainable. The margins are too low and all members of the supply chain are feeling it. The demand for the global supply chain services is at an all time low and firms need to get productive and cut costs otherwise they will die in these leaner times.

Customers are getting champagne at beer prices, and it cannot last in the long run.

All members of the supply chain are basically each others customers, and since prices have dropped, customer service between firms is something that can be improved. For shippers, they are not in the business of building bridges, laying tracks or building warehouses. These are all issues that are individually faced my other members of the supply chain. However, these factors will influence shippers in their capacity to move cargo.

And if the ports of Long Beach and LA cannot help coordinate these efforts to improve the goods movement industry, the shippers will go someplace else.

One analogy that I appreciated was that cargo is like water, it will go through the path of least resistance to its final destination.

Next Week: Part II

IE Retail: Starbucks Is The Posterboy Of What Not To Do

From Reuters.

Of the 600 stores that Starbucks closed in 2008, 88 of them were in the Inland Empire. That is around 15%.

I feel somewhat guilty. The retail brokers that used to work here were heavily involved in pushing the power center concept to its logical extreme in the I.E. These centers are now the headstones in a retail graveyard. One of my investment broker friends is doing a presentation tomorrow at the San Bernardino Economic Summit on the retail market. Will post those slides later.

The coffee chain moved in -- and cashed in -- when high-density housing developments were springing up near highways and on hillsides in the area well east of California's famous coastal cities. Now that the party is over, Starbucks is pulling up stakes.

Starbucks' predicament offers a glimpse into fortunes of U.S. retailers, who are retrenching after easy credit fueled a consumer spending binge.

...

In 2004, on the heels of unexpected success in red-hot real estate markets like the Inland Empire -- which claims some of the nation's highest percentages of children under the age of 20 and "aspirational" consumers aged 20 to 34 -- Starbucks predicted it could rival the size of hamburger chain McDonald's Corp.

Just a few years later, the Inland Empire is best known for its leading role in the housing bust.

Pulse of The Ports Tomorrow

Has it been a year already?

The "Pulse of the Ports" peak season forecast is here already.
It is tomorrow in Long Beach.
Last years was awesome and I am expecting nothing less this year.
For a recap of last years presentation, click here.

Last year people were feeling a little blip in port pressure. Gas prices were high and transportation / supply chain was the theme.

This year, I am expecting many long faces. The theme will likely revolve around in how wrong all our previous forecasts were and how everyone is hurting because port volume is down.

There are no longshoreman representing on the panel this year, which is fine. They did not really share anything new last year.

Looking forward to the recycling bit, there are likely to be some disturbing numbers in that presentation. (FYI one of the largest exports out of LA / Long Beach is scrap).

Here is the agenda.

Peak Season Forecast "Pulse of the Ports"Long Beach Harbor Department - Special Meeting
Location: Hyatt Regency Long Beach

Experts Presenting Industry Forecasts

Dr.Joseph P. Magaddino — Chair, Department of Economics, Cal State University, Long Beach

Dean Tracy — Director International Transportation, Lowe's

George Adams — Chairman, Institute of Scrap Recycling Industries, Inc. (ISRI) and President of SA Recycling

Peter I. Keller — President, NYK Line (North America) Inc.

Elvis Ganda — President, California United Terminal

John Doherty, P.E. — CEO, Alameda Corridor Transportation Authority

Bob Curry Jr. — President, California Multimodal, LLC

"Clean truck" program at Port of LA/Long Beach handed legal setback

From LM:

LONG BEACH—In hearings staged late last week, the U.S. Court of Appeals for the Ninth Circuit unanimously held that the California lower court erred in refusing to enjoin the truck concession programs instituted by the Ports of Los Angeles and Long Beach.

The crux of the argument is that these changes would economic regulation and result in harm to the trucking industry. One major problem is that the two ports would start having different rules regarding labor.

The Clean Truck Program is designed to encourage rapid improvement of air quality at both ports through use of grants and financial incentives that will allow trucking companies to accelerate the replacement of older, high-polluting trucks with newer, cleaner trucks. While the Port of Los Angeles has been mandating that drivers not be drawn from an owner-operator pool, Long Beach allows terminal access to trucking companies that employ drivers, independent operators or companies that use a combination of employees and independent operators.

Port Volumes Lowest Level Since 1997

From the LA Times:

At the Port of Los Angeles, the number of containers carrying imported goodsfell in February by 35.3% to 206,035 containers. That was down from 318,445containers during the same month in 2008, and it marked the lowest monthly total for imports since May 2001. Exports declined 27.6% to 111,595 containers from 154,127 in February 2008.

The Port of Long Beach saw an even steeper decline, in part because the low volumes meant that shipping lines were reverting to small vessels and no longer had as much need for Long Beach's naturally deep harbor. February imports dropped by 43.3% to 92,781 containers from 147,275 a year earlier. That is the lowest monthly total for imports at the port since November 1997. Exports were down 37% to 92,781 containers from 147,275.

Those twin ports are the engine of growth for Southern California and especially the Inland Empire. The Inland Empire can be seen as an inland port for Los Angeles / Long Beach, so if the volume of goods coming in is down, then the amount of space needed in the Inland Empire goes down by a multiple of this decline.

So if incoming volume is down to 1997 levels, then would the amount of industrial space needed to handle that volume would also be down to 1997 levels?

Quarterly Report Time

Sorry I have not been posting with my usual frequency, it is that time of the quarter again.

Here is a post I did for New Threads.

That is all I got now.

Brutal, Just ... Brutal

Jim Cramer on "Daily Show" last night.

Essentially Cramer found it difficult to defend the greed & pillaging of Main Street by Wall Street and Stewart called him out on it.

It is ironic to see a "fake" news show tear a "fake" business show a new one. The irony is that the Daily Show is one of the hardest hitting news shows out there and might be the embodiment of actual journalism.

I prefer the comic stylings of the Daily Show to the Onion any day.

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Pt. 2

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

Recession Slams Chinese Exports Again

From Business Week:

China exports dropped an "ugly" 25.7% in February after January's 17.5% fall.
The government is trying to boost domestic spending to alleviate the pain.

This is very bad news for the IE since all those imports used to come here. Our economic base (supply chain & logistics) for the most part starts overseas.

CBRE’s Horne Sees a Two-Year Recession

From Globe Street:

The will be more slide in the market, said Lew Horne, CB Richard Ellis’ executive managing director, speaking last week at Incisive Media’s RealShare Real Estate 2009. The moderator of a panel titled “How to Adapt to Changing Demands in the Market,” he said that “there is a complete lack of confidence and it permeates throughout business. It is going to take time to get that confidence back.”

I wonder if Horne foresaw a 90% decline in his firms share price.

Damn Railroad Monopolists

Railroad shipping: Senate Judiciary Committee signs off on railroad antitrust legislation

Along with removing antitrust exemptions for the railroad industry, the legislation also would:

revise provisions prohibiting anticompetitive transactions except for those approved by specified federal agencies acting under certain statutes to eliminate the exemption for certain STB approved transactions;

empower the Federal Trade Commission (FTC) to regulate, and engage in antitrust enforcement regarding, collective rate agreements and certain transactions, including railroad mergers and acquisitions;

revise STB authority to provide that a rail carrier, corporation, or a person participating in an approved transaction is not exempt from specified antitrust laws;

and

permits treble damages against railroad common carriers in antitrust suits to parties injured by antitrust violations without regard to whether such railroads have filed rates or whether a complaint challenging rates has been filed, among others.

On one side are shipper groups, most notably CURE (Consumers United for Rail Equity) whom cited how the four largest Class I railroads—Union Pacific, CSX, BNSF, and Norfolk Southern—reported a combined $358 million year-over-year increase in fourth quarter revenue at a time when there is a recession and these railroads reported lower volumes. CURE contends that this highlights the ability of the railroads “to extract greater profits per shipment through their monopoly pricing power.”

Damn, I just bought some BNI shares. Note to anyone reading this blog: If I ever make investment advice, do not adhere to said advice. Everything I bought has more or less failed horribly.

If The Recession Was A Three Act Play ...

Little thought experiment.

If I was a writer and I was creating this recession on paper, where would our current situation be?

Or, how much longer before we get the Hollywood, feel-good ending that we feel we deserve. How much longer before the credits roll and we can exit the dark theatre and get on with our lives?

So far, I would venture to say that we are done with the first 30 minutes.

Act 1.

The protagonists have been established (Wall Street, Lenders, the Federal Reserve, home buyers etc) and the dramatic situation is definitely known. All the characters know their roles in the creating the recession and the audience is finding out the backstory of our characters as the "script" fleshes them out.

I am crossing my fingers that all the characters have been introduced. I am sure the average person knows more about Wall Street financing villains or the subprime, CDO, CMBS or other esoteric monsters than they had ever hoped to understand.

I know my patience at learning all the horrible things in the economy is coming to an end.

Which brings us to

Act 2.

The ending has been visualized, the characters know their purpose and encounter obstacles that prevent the recession from ending.

The stimulus could save us except for ...
If only the Fed could rid of the world of ... we would be saved.
If only the American public could learn to love again and consume like this never happened ...
etc...

This part of the play usually ends when all hope has been lost and the characters encounter their lowest points.

The problem in knowing when this happens is that this play has too many twists in it. Every time it feels like the bottom, another blow is dealt to our hero.

The villains strike again, James Bond is again captured and imprisoned, there was another terrorist plot for Jack Bauer to solve and the CTU has been raided ... again.

There is no lowest point, which is where I feel we are right now. Every day seems worse than the last and the audience is starting to face despair fatigue.

Act 3

The recession ends and things go back to normal. Calm, equilibrium, our hero marries the princess to live happily ever after. The band has gotten back together and put on that "one last show" and all is forgiven.

Yeah, it does not feel like we are anywhere near here.

Maybe we don't have a movie or a play.

Maybe we have a mini-series.

Maybe we are only starting season two, with the election of 2008 being the climax.

Comments on the Current Financial Crisis (an Abridged Version)

Talking points from the Dallas Fed Chairman, whose eloquent and plain speaking insights are a calm steady hand that gives me hope that we may make it out of this episode alive.

Please read the whole article, it is informative and entertaining

1. Basically the world is screwed, but the U.S. is doing better than most.

Our gross domestic product shrank at an annualized pace of 6.2 percent in the final quarter of 2008. Even here in Texas, we saw our economy shrink in the fourth quarter. Abroad, the European Union's economy declined at an annualized rate of 5.8 percent, England's by 5.9 percent, Japan's by 12.7 percent and Korea's by 20.6 percent. And China's growth tapered down significantly to a reported year-over-year rate of 6.8 percent. Our closest neighbors saw their economies shift into reverse gear: Mexico's economy contracted, as did that of Canada, a net oil exporter with a surplus in its federal budget, low corporate and consumer debt levels, and no apparent subprime mortgage problems.

2. Businesses are shrinking and it is painful.

I will not venture to predict the future of our manic-depressive friend, Mr.Market. But I do know the consequences of his intemperate disposition. Faced with unforgiving stock and credit markets, American businesses are doing what they can to stay profitable: As demand for their products shrinks, they are slashing every cost factor under their control to preserve their profit margins.

They are addressing their cost of labor by aggressively cutting "head count." They are delaying capital expenditures, tightening inventory management and demanding that suppliers cut their prices. They are watching their receivables and stretching out their payables. And they are taking every step they can to clean up their balance sheets. (One of my colleagues recently quipped that when looking at the balance sheets of consumers or banks or many other companies these days, nothing on the left is left and nothing on the right is right.)

3. The Fed is on it.

As I said earlier, in times of crisis many feel that the best position to
take is somewhere between cash and fetal. But it does the economy no good when creditors curl up in a ball and clutch their money. This only reinforces the widening of spreads between risk-free holdings and all-important private sector
yields, further braking commercial activity whose lifeblood is access to affordable credit. We believe that the new facilities we have created will improve the functioning of credit markets and restore the flow of finance to the private sector.

I realize that by straying from our usual business of holding plain vanilla, mostly short-term Treasuries as assets and by shifting policy away from simple titrations of the fed funds rate, we have raised a few eyebrows. One observer has posited that we have migrated from the patron saint of Milton Friedman to enshrining Rube Goldberg.

I assure you the Federal Reserve has not abandoned the wisdom of Professor Friedman or any of the other established patron saints of central banking. But these are complex, trying times. Our economy faces a tough road. We are the nation's central bank and we are duty bound to apply every tool we can to clean up the mess that our financial system has become and get back on the track of sustainable economic growth with price stability. The men and women of the Federal Reserve spend every waking hour doing their level best to perform their duty. Even if we have to deploy a little Rube Goldberg engineering to get the task done.

Cross-Blog Post

Leveraging our synergies across multiple platforms!

Cobbled together some information I did for our retail team up here and sent it to RealChatr, a retail blog that I stumbled upon.

Here is the link to the piece. http://www.retailchatr.com/2009/03/05/retail%e2%80%99s-misfortune-in-the-inland-empire/

Basically it is about overbuilding in the Inland Empire in contrast to Los Angeles and the OC.

The reader count was up to 17, which motivated me to reach out and make some new friends.

Commercial Real Estate Researchers get their comeuppance

From the Observer:

If commercial real estate brokerages were high schools, brokers would be basketball players, and researchers, the cerebral folks who turn data into decipherable macroeconomic pictures, would be enthusiastic members of the math club.

“We’re nerds and we love it,” said the amiable Ken McCarthy, managing director of New York research for Cushman & Wakefield.

Call it revenge of the nerds, but economic upheavals have a way of upending social orders, and commercial real estate researchers across the city are finding themselves growing in popularity.

“As the gatekeepers of info, yeah, there’s no doubt about it: The value of information has gone up dramatically,” said Pamela Murphy, the vice president of market data services for CB Richard Ellis. “We get the feeling that information is just so important. Clients are looking for guidance. Everyone’s trying to figure out where the market is. And we all know what direction it’s going.” (It’s going down.)

Most researchers explain the increase in demand for their services like so: In this abysmally barren desert of an economy, brokers need help finding directional markers. All they see before them right now is blank expanses of sand.

“It’s much more difficult for real estate professionals on a day-to-day basis to determine what’s going on and what it means for them and their clients,” Mr. McCarthy said

That’s something researchers are particularly well equipped to handle. Speaking broadly, researchers spend their days tirelessly acquiring and sifting through reams of data about the commercial real estate market: asking rents, taking rents, lease renewals, building sales (in the rare cases when such transactions happen), vacancy rates and the like. Then those researchers draw from that data a picture of what the real estate market looks like and, particularly in New York City, present it to the world, be it reporters, clients or brokers.

The job requires a peculiar mix of nerdish numbers-loving and media savvy.

“[Ten years ago] I would say that we tended to be back-office types that sat at our desk and did research,” said Robert Sammons, managing director of research at Colliers ABR. “But that’s not really the case anymore. Today, I see it very differently, as being called upon to talk to clients and to reporters. … Getting in front of our clients, probably, is a big part of this job.”

Sam Chandan, the youthful economist who in December left the well-respected REIS to start his own research firm, in some ways exemplifies this kind of researcher.

A 35-year-old graduate of Wharton and Princeton, Mr. Chandan, with his rapid-fire PowerPoint presentations, has become an increasing hit on the researcher-speaking circuit. And in December, seeing what he described as a hole in the New York research market, and a growing demand for real estate information, Mr. Chandan started his own firm, Real Estate Economics. Unlike the other players in the market, he focuses on mortgage portfolios.

“A lot of my background is in the interaction of public and private markets,” Mr. Chandan said. “I saw an opportunity to match the market’s need.”

“As the market is changing more quickly, there’s too much volatility in the market, in every aspect of the market, and there’s greater uncertainty,” he said.

Paul Frischer, Newmark Knight Frank’s executive managing director of research and the president of Rexx Real Estate Index, agreed.

“The demands for research are greater,” Mr. Frischer said. “We have had unprecedented conditions, and I think people haven’t seen this and therefore want someone who can tie the dots together to provide some direction as to where we will end up.”

“The biggest question is how long are we going to be in this for,” Mr. Frischer said. “And then, how bad will it get?”

Ms. Murphy of CBRE said she is most often asked how this recession compares to recessions past, what pricing is like right now, and “everyone wants to know where the bottom is.”
Ironically, just as the demand for good information is growing, some researchers have been victims of the recent spate of layoffs at investment banks and commercial brokerages.

When Mr. Chandan, whose firm now employs four people, recently told trade mag Commercial Mortgage Alert that he might be hiring, he found himself inundated with résumés.
On the flip side, the research unit at Mr. Sammons’ Colliers ABR recently grew, and Dan Fasulo, the managing director of Real Capital Analytics, described his firm as “probably in the 5 percent of companies that are expanding right now.”

“The reports that we’re getting from our sales folks have just blown my mind, that they’re able to attract new clients in this environment,” he said.

Researchers, in other words, have grabbed the limelight.

“I guess people want to be, I don’t know if the right word is ‘comforted,’ necessarily, but they want to feel reassured,” Mr. Sammons said. “In a downturn, people feel very depressed, or very alone. … And in this situation, they want to hear from somebody that might have more facts at their disposal that we’re going to come out of this, that we’ve been in similar situations, that this is not the end of the world. I get a lot of questions about will we come out of this, will New York survive?”

Dr.Pepper Plans on Hold?

Dr. Pepper / Snapple plans on building a 850,000-square-foot combination production and distribution center, valued at $120 million and is estimated to employ about 200 people.

Development was planned to break ground sometime this quarter, however things have changed.

A group called "Grow Victorville Smart" claims that Dr.Pepper never filed a complete environmental impact report. The group wants Dr.Pepper to use renewable energy and to conserve water. Which may be hard to do, since the major ingredient in soft drinks and tea, is water.

They have also sued based on the discovery of lead and asbestos. I wonder if this group has ulterior motives for holding up the site.

The Commercial Real Estate Tables Have Turned - Tenant Tricks

From the NY Times:

Office landlords have always scrutinized the financial stability of prospective tenants, but now they are finding themselves under the lens.

Prospective tenants are asking for financial statements from
landlords, hoping to avoid companies that might default on their mortgages and leave tenants at risk of losing the space. Tenants are also more wary of subleasing space, and are tending to flock to buildings with stable owners.

Wow. The era of overly optimistic pro-formas, stupendous leverage, outrageous rent projections and shaky underwriting has led to the greatest tenants market in the last 10 years.

There is some good advice in the article having to do with TI's. Get them put into an escrow to prevent them evaporating in a BK situation.

Or to secure your TI's you might look into a "right-to-offset" which means that if your TI's are not paid you can deduct them from your rent.

"Self-help-rights" Get compensation from your landlord if your Full-Service-Gross lease is in fact a bare-bones triple net, I.E. your landlord is not pulling his weight in maintaining the property.

Or you could get a "Non-disturbance agreement" which means that if your landlord goes BK, the bank has to recognize your existing lease.

Pretty good article and useful information.

Malls Cutting Hours To Trim Losses

From the Press Enterprise:

So far, most Inland shopping malls have not been impacted in moves by some national operators to reduce costs by trimming mall hours, as consumers continue to pull back on spending.

Reduced hours went into effect Sunday at Westfield Palm Desert, owned by Australia-based Westfield Group; and Ontario Mills, owned by Indiana-headquartered Simon Property Group.
Starting this week, weekday hours have been trimmed -- by opening a half-hour later and closing a half-hour earlier -- at most of Westfield's 55 U.S. malls, including the Palm Desert mall, its only Inland location. Westfield said the changes were intended to help reduce labor, utility and other costs during times of low foot traffic.

Retail is getting hammered in this downturn, more so than in other recessions
as PCE, personal consumption expenditures, has been declining in October, November &
December, and has only begun to level out in January.

Desperate times call for desperate measures, and highly leveraged mall owners / retail REITS (*ahem* General Growth Properties) are on the verge of bankruptcy.

What happens when the landlord defaults? Can struggling anchor tenants wiggle out of their long-term leases? What is the bank going to do with a mall?

Things to look forward to in the upcoming months as this whole "recession" thing works itself out.

Supply Chain Carbon Intensity

The World Economic Forum has a report out on the contributions the supply chain has to carbon dioxide emissions.

They estimate that logistic activities contribute annually 5% of the 50,000 mega-tonnes of carbon dioxide emissions generated by all human activity.

The report highlights the feasible opportunities with the greatest carbon dioxide abatement potential:

Clean Vehicle Technologies (175 mega-tonne potential savings. High feasibility)

Despeeding the Supply Chain (171 mega-tonne potential savings. High feasibility)

Enabling Low Carbon Sourcing: Agriculture (178 mega-tonne potential savings. Medium feasibility)

Optimised Networks (124 mega-tonne potential savings. High feasibility)

Energy Efficient Buildings (93 mega-tonne potential savings. High feasibility)

Packaging Design Initiatives (132 mega-tonne potential savings. High feasibility)

Enabling Low Carbon Sourcing: (Manufacturing 152 mega-tonne potential savings. Medium feasibility)

Training and Communication (117 mega-tonne potential savings. Medium feasibility)

Modal Switches (115 mega-tonne potential savings. Medium feasibility)

Reverse Logistics / Recycling (84 mega-tonne potential savings. Medium feasibility)

Nearshoring (5 mega-tonne potential savings. Medium feasibility)

Increased Home Delivery (17 mega-tonne potential savings. Medium feasibility)

Reducing Congestion (26 mega-tonne potential savings. Low feasibility)


For all the press that nearshoring and energy efficient (LEED) buildings have had, their overall contribution in terms of carbon dioxide abatement is small compared to reverse logistics and less packaging or more efficient materials handling.

You don't really need a "big fix" to make a difference. Little fixes, wasting less, going slower, thinking things out and being more efficient all add up. You don't really need to wait for hybrid trucks or other technologies to change the world.

March Article Released

My original title was "The Inflation / Deflation Debate"

But the editor changed it to "Newfound thrift could be double-edged sword"

Here is the link:

My original title may have been too academic whereas the one that went to print applies more to the everyday reader.

I really should start these much earlier than I do and I should also try to get some quotes from experts in the field.

This article does show up in the business section after all, not the editorial 0r opinion pages.

Torto Wheaton Changing its Name

From CBRE:

To take advantage of the established global brand equity of CB Richard Ellis, Torto Wheaton Research will change its name to CBRE Econometric Advisors. Although the name will change, the team will remain intact, as will the TWR approach—objective, academic-based research and consulting—as we expand it globally.

I have much respect for Bill Wheaton. He might not have been the founder of real estate economics, but he is a guiding light in the field.

I wonder why they are changing the name. CBRE Econometric Advisors sounds pretty generic.

Bill is a professor at MIT and I think he spends a majority of his time on his academic career. I think Ray Torto did most of the work at CBRE. Ray was recently appointed as CBRE's Global Chief Economist.

There was a lot of research clout in the Torto-Wheaton name, why would you change that?