Obama Beer Summit

The following has little to no relevance to the Inland Empire, industrial real estate or economics.

But it does shed some light on beer and how it changes the world.

While I commend Obama on raising beer awareness globally, I am not sure if I agree with the political grandstanding and the message the choice of beer sends.


Obama Beer Summit Choices Make For A Happy Hour

By choosing beer for the meeting instead of, say, a Washington state pinot noir or a summery gin and tonic, what was the president trying to telegraph?

I'd say he's attempting to cater his appearance to the everyday layperson throughout Middle America. Beer is one of the oldest alcoholic beverages in the world, and the oldest and most popular in the United States. Most of the rebel meetings of our Founding Fathers were based around a pub, or a big tub of beer, and many of them brewed beer on the side. Many of the world's most important — and maybe some of the worst — decisions were probably based around a glass of beer.

Can you tell us what the beer choices for the summit might tell us about the quaffers? (For Obama: Bud Light, owned by Belgian beverage giant InBev; for Gates, Red Stripe, Jamaica-brewed and owned by premium drink behemoth Diageo; and for Crowley, Blue Moon, owned by MillerCoors.)

They're all really session beers — a description that originates in Britain. They're the kind of beers drunk when a bunch of mates sit down and drink pint after pint after pint of light, refreshing beers. Session beers are meant to be drunk in quantity — they don't fill you up and can be drunk without too many deleterious effects. Maybe President Obama and Professor Gates want to project something that appeals to the masses, but the officer is probably drinking simply what he likes.

And the beers?

Bud Light is considered a "lawn mower" beer, perfect for after mowing the lawn or when you get home from work. It's one step up from a nice, tall glass of ice water and generally one of the lightest pale lagers made in the United States. Red Stripe is also a pale lager, but it's an official handmade product, with a little more flavor and flair. And Blue Moon is also mass-produced, but it's an ale. It's a more flavorful beverage, with some floral character and hints of coriander and orange peel. None of these are microbrews or craft beers, but the closest is Blue Moon, a tasty beer that's a macrobrewer's attempt to join the craft beer market.

AMB Q2 Earnings Report

Can be found here:

Some highlights,

Before we review the quarter's highlights, I'd like to go over the major drivers of global demand for industrial real estate. In order of importance, the top five of these include global trade, global GDP, industrial production, business inventories and consumption

...

Today we see unmistakable signs that we are moving closer to the inflection point in the cycle. The record declines that we saw in the global economy and global trade during the first half of the year are clearly moderating. For example, the decline in container traffic through major ports is slowing down. Since bottoming in February, year-to-date port container decline has moderated in each of the four months ending in June.

This is also true for air cargo volumes, which hit their cyclical lows in February and have declined less on a year-to-date basis for each of the subsequent months through May, the last reported month. While we're encouraged by the improvements in these trends, we acknowledge that there are off record lows and have yet to turn positive.

There are also early signs that some rebuilding of inventories has begun. For example, leading indicators of industrial production, precursors to trade growth have been on the rise in the US and are beginning to expand in many countries including Germany, France, Singapore, Korea and China.

Retail sales in China have continued to grow about 15% year-over-year. We believe the Chinese consumer will play a significant role in the global recovery. As you all know in the US, retail sales have improved four out of the six reporting months through June.

Our customers are also sending positive signals. Sentiment and traffic through our properties are improving, customers tell us that they feel the economy is touched or is close to touching bottom. Decision making has begun to ease.

Ripple Effect From Slowdown at Ports

It pays to have your quarterly numbers come out first. The news media is hungry and sometimes all you have to do is answer the phone. Oh, and have a top-notch research department, that helps too

Ripple Effect From Slowdown at Ports

The recession hit the vast South Bay and Mid-Cities industrial markets hard last quarter as companies in the area that serve the region’s twin ports either pressed for lease deals, closed shop or consolidated operations.

Vacancies increased more than one point in Mid-Cities to 3.1 percent – the most dramatic increase of all Los Angeles County industrial markets – while the South Bay vacancy rate increased three-tenths of a point to 2.7 percent. Driving up the vacancy rate was a sharp slowdown of activity at the ports that not only affected tenants but rattled landlords as well.
“We are seeing short-term renewals, which is a combination of companies waiting out and landlords not wanting to grant long-term renewals at depressed rates,” said Alex Blecksmith, an associate at Colliers International. “But for the sake of keeping
occupancy, landlords are conceding at 12 or 18 months.”

One example is Medical Depot Inc., a distributor of medical supplies, which signed a lease renewal on Rosemead Boulevard in Pico Rivera at 52 cents triple net – for just one year. What’s more, brokers said tenants looking to strike deals with landlords are requesting rent reductions as they seek to cut costs where they can. Consequently, asking rents dropped from 57 cents to 51 cents in Mid-Cities and 64 cents to 62 cents in the South Bay.

But cheaper rent rates may not be enough to keep tenants locked in. If the recession doesn’t turn around soon, brokers said tenants could begin moving operations to cheaper markets, such as the Inland Empire.

Industrial Markets At a Glance:

Inventory: 325 million square feet

Under Construction: 570,241 square feet

Asking Rents: 62 cents (South Bay); 51 cents (Mid-Cities)

MAIN EVENTS
- Acco Engineered Systems purchased a 150,000-square-foot industrial building for more than $15 million from Joseph T. Ryerson & Son Inc. The building, at 6446 E. Washington Blvd. in Commerce, is the 11th location for the Glendale mechanical engineering firm. Acco plans to use the space for its fabrication, warehousing and distribution needs.

- CAN Transport, owned by Amco Distribution Services Inc., signed a 50,000-square-foot lease at 23803 S. Wilmington Ave. in Carson. Landlord Watson Land Co. modified the space, tearing down an office section used by the previous tenant. The property features a large parcel for the company’s trucking operations. The deal represents a consolidation for Amco, which moved from a 177,000-square-foot building also in Carson.

Ports Of Los Angeles / Long Beach Second Quarter Volume

The ports of Los Angeles and Long Beach have released their June numbers, which means that we can now make quarterly comparisons. And things are not looking so great.

Over the quarter, imports are up (note: the chart below only includes imports, as they have the most relevance for industrial space in Southern California).

Since last Quarter: Imports Increased 10.5%.
Since last Year: Imports Decreased 21%

Imports are almost always going to be higher in the second quarter over the first quarter, because Q2 is the start of the “Peak Season”, where Christmas goods start to push up imports into LA/LB.

This quarter, imports totaled 1.4 million TEU’s, around the same level seen in 2001. Things are going to stay ugly as far as imports are concerned for the rest of 2009. Christmas ordering is over, and there will not be a surprise flood of goods since it has already been planned.

From Journal Of Commerce:

“It’s protection for both sides,” Lau saidCarriers cannot hope for a rush of last-minute orders placed with factories in Asia to rescue them this peak season. Apparel, an important peak-season cargo, has a long lead time because of the piece-work involved in the manufacturing process. Orders for clothes to be sold during the holidays were finalized weeks ago. In fact, apparel retailers are preparing to place their orders for next spring.

Retailers had until early July to place their final orders for toys and electronics, but no surprising mass orders materialized there, either. Shipping patterns for the summer-fall peak shipping season have therefore been set. Carriers did not experience a large shift in market share because every price move in the eastbound Pacific was matched by other carriers.

Although retailers and larger shippers were conservative this year in making volume commitments, they also demonstrated their loyalty to carriers by sticking with them, sometimes in the form of multiyear contracts.

Imports are fairing better at LA, where they are down 13% over the year. At Long Beach, imports are down 25%.

So what to expect in the next 6 months? Imports will rise as should activity, but do not count on an economic recovery as a Christmas present.

Inland Empire industrial market shows signs of bottoming out

What does this jerk think he knows?

Inland Empire industrial market shows signs of bottoming out

The industrial landscape of the Inland Empire is dominated by large distribution centers that serve as the economic backbone of the region. Since the onset of the global recession in late 2007, the industrial market has shed 14.3 million square feet of industrial space as retailers and distributors contracted as economic conditions soured. Over this same time period, the unemployment rate has increased from 5.2 percent to 13 percent.

For the current quarter, the vacancy rate for industrial space in the Inland Empire has continued to rise and now stands at 15.1 percent. Weighted average asking rents have continued to decline for the fifth straight quarter to 36 cents per square foot NNN, the lowest asking rents in the Los Angeles Basin.

Sales and leasing activity totaled 5.9 million square feet as several large transactions occurred in the last three months. Trader Joe's purchased a 574,000-square-foot building in Fontana and IDS leased 645,300 square feet in Mira Loma. Sales and leasing activity has been steadily increasing over the past year but has not been enough to stem the tide of industrial losses that has continued to plague the region. Net absorption, a measure of real estate demand, was negative 2.3 million square feet in the second quarter of this year.

Despite the decline in industrial demand the region has faced over the past two years, many are seeing signs that the market is beginning to bottom out.

We are still seeing vacancy rates rise as businesses continue to cut costs and shrink operations, but without question leasing activity is better than last year when nobody knew what was going on or who was going out of business" says Jeff Bellitti, Associate Vice President of Colliers International.

"Companies are starting to plan for growth after years of cutbacks. We just have to turn these plans into actions. It is going to be slow at first, but slow is better than backwards, which is what last year was," says Bellitti.

Positive indicators for the region include rising port volumes, which have increased steadily since they reached their lowest monthly total in over nine years in February.

Other positive indicators include a rise in the national Purchasing Managers Index (PMI), which increased to 44.8 in June, edging closer to the 50 needed for economic growth. Locally, the PMI for San Bernardino County as reported by the Institute of Applied Research at Cal State San Bernardino was at 51.8 in June, indicating that the economy has already bottomed out and is beginning to recover.

While it is still too early to state with absolute confidence that the economy is growing, and jobs along with it, conditions are improving over what they were last year, or even last quarter.

Fuel Price Mischief? Again?

Some experts predict that oil will drop in the near future.

Here is a Bloomberg Article that summarizes the thinking behind $20 oil

Also, here is an article from a money newsletter that I follow that more or less points to the same conclusion.

What's driving this year's oil rally?

We’re convinced this year’s oil rally hasn’t been driven by how much of the stuff is actually being consumed. It’s been down to a potent mix of investor overconfidence and speculation.

In contrast, the current oil supply and demand picture in the ‘real’ world is… well, rather boring. Oil consumption this year is set to drop by 1.6m barrels a day, said oil cartel Opec last week.

Global consumers need 84m barrels a day, a 2% drop on 2008.

Meanwhile, the planet’s production has exceeded demand by about 1m barrels a day.

This has led to oil supplies building up, with the Chinese stockpiling particularly hard. And even a small shift in this supply/demand balance can cause quite large changes in oil prices.

But so far, nothing even near the collapse in crude costs to $20 a barrel during 2009 that former-US government adviser and University of Calgary Professor Philip Verleger has just forecast. Could oil really fall to $20 a barrel?So what’s his reasoning?

Well, he reckons that a 100m barrel crude surplus will build up by the end of this year.

Current global storage capacity simply won’t be able to cope, so all the stockpiling will shudder to a halt. Opec may be making record supply cuts of some 2m barrels a day in response to plunging consumption last year, but this doesn’t deter Verleger, who says that “Opec doesn’t realize the magnitude of the cuts it needs to make”.

He believes oil prices would be much lower today but for all that stockpiling.

“The economic situation isn’t getting better”, he says. “Global refinery runs” – i.e. producing the likes of petrol – “are going to be much lower in the autumn. If the recession continues and it’s a warm winter, it’s going to be devastating”.

The net effect, he believes, will be to send oil prices plunging to levels last seen in February 2002. This may all sound just too apocalyptic. It’s certainly miles away from consensus thinking.

The average City analyst reckons oil will be around the $64 mark in 2009’s fourth quarter, says Bloomberg. Goldman Sachs predicts oil will rally to $85 a barrel by the end of the year. And demand from China, which has just announced annualised GDP growth of 7.9%, is expected to support the oil price.

But Verleger has a good track record. He correctly predicted that oil could go to $150 a barrel in 2008, and last September forecast that prices were heading for a “$50 to $70 world”. T

hat’s been exactly right for the last four months. And the more you look at his analysis now, the more sense it makes.

China’s rapid expansion could be an illusion.

As Christian Tegllund Blaabjerg at Saxo Bank says, most of the recent Chinese growth has stemmed from the government’s stimulus package, which has fired up record bank lending.
But “the Chinese government is postponing the inevitable”, he says. When “that injection of heavy liquidity” runs out, falling exports will curb the country’s growth rate. Verleger’s very clear. “China is in a real desperate situation”, he says. “US consumers aren’t consuming and Chinese manufacturers will get hurt. Economists are looking for growth in all the wrong places”. Then there are those speculators. “Excess speculation needs a constant inflow of new money to sustain prices”, says Jeff Korzenik on Efficient Frontiers.

“Just like a Ponzi scheme” – think Bernie Madoff paying off old investors with his latest cash coming in – “needs new funds to keep the game going”. If oil stocks build up like Verleger believes, and prices start to tumble as demand dries up, much of the cash that’s been chasing the likes of oil could evaporate very quickly.

As we pointed out a couple of weeks ago, more money piled into the 1,500 commodity funds tracked by Jennie Byun at JP Morgan Chase in the first half of 2009 than in any previous entire year. But if oil stops being flavour of the month, just watch that money find other homes – fast.

On the one hand, lower fuel prices means lower overhead for our industrial users, many of whom rely on trucking. The bad thing about dropping fuel prices is that change is, for the most part, bad for business. If you do not know what your costs are or are going to be, it is hard to accurately price your product.

I do not know where fuel is headed, it caught me completely off guard last year @ $150 a barrel and caused a lot of grief to many of our clients.

Commercial Bid-Ask Gap

Tell me what the following numbers have in common:

$55 & $44
$99 & $74
$88 & $62
$58 & $44
$67 & $51
$314 & $201
$92 & $86
$107 & $94
$140 & $136
$70 & $50
$175 & $144
$90 & $60




If you guessed what industrial sellers were offering and what industrial buyers were buying in the second quarter in the Inland Empire and the San Gabriel Valley, you would be right!.

Now, tell me what these numbers have in common:

$114 & $106
$118 & $116
$128 & $118
$96 & $87
$55 & $49
$165 & $164


If you guessed the bid-ask gap in the second quarter of 2008, you would also be right.

What can we take away from this?

It looks like the spread has grown over the year, but it also looks like the number of transactions is up.

Interesting enough that a detailed analysis is warranted. Will see where this goes.

Same playbook please,

I had just finished my July article for the newspaper on the industrial market for the Inland Empire (a little more light-hearted, less end-of-the-world than my usual pieces) when today, of all days, the LA Times reports that global shipping is "looking at a $20-billion black hole of losses. We can expect a lot of casualties".

Moreover:

"The ramifications for the Los Angeles and the Long Beach ports will be felt in some of the best-paying blue-collar jobs in the nation, as longshore workers lose hours at the docks, truckers have fewer containers to carry and railroad traffic ebbs. The Inland Empire, which has the nation's second-highest unemployment rate among urban areas because of the collapse of its warehouse and distribution system, will continue to suffer, said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp."

Thanks Jack! But this was last years speech, all the doom and gloom stuff is over. Now it is just gloom.

And the Inland Empire has a high unemployment rate because of laid off construction workers, not necassarily just the transportation workers, but I am splitting hairs now.

Well, I already submitted the article to the paper. So we will let the readers decide.

Second Quarter Reports!

Second quarter reports are now available. Share them will all your friends.

Click the above links to be directed to the report of your choosing.

More Unions: Because The Cost Of Doing Business Was Not High Enough Out Here

It is a common misconception that warehouse workers in the IE are paid less than those in Los Angeles. They are not. Look at the BLS numbers.

The median transportation and materials moving occupation in LA metro pays $12.25.
For Riverside-San Bernardino, it is $13.24.

There, the IE's dirty little secret is out. On average, workers here cost more. The reason is that if labor theory holds, then workers are paid their marginal utility of labor, thus workers in the IE are more productive.

And they should be. The warehouses here are head and shoulders above LA county, so fewer workers can work bigger warehouses.

What bothers me about these "new" unions is that they are not affiliated with the established existing unions. They are trying to shake things by having all these "strikes" and "walkouts" but have done little then get people arrested. To me, it seems like a wildcat strike by a wanna-be union who is hurting their constituents more than helping them.

Business conditions are not favorable here in California, and we do not really need yet another union to muck up the flow of goods.

Just my two cents. Below is the LA times article.

These guys are making some headway, two months ago they were not even quoted in the local papers.



LA Times:

Unions hope to organize Inland Empire warehouse workers

A labor coalition known as Change to Win is focusing on the vast warehouse and distribution hub in the region, which handles goods from the ports of Los Angeles and Long Beach.

The Inland Empire has become a new battleground for unions looking to organize warehouse workers and broaden labor's clout in international trade, a $300-billion industry in the Southland.The fledgling movement is backed by a coalition of unions with more than 6 million members known as Change to Win. That's the national labor group that broke with the AFL-CIO in 2005 and includes the Service Employees International Union, the United Food and Commercial Workers International Union, the United Farm Workers of America and the International Brotherhood of Teamsters, among others.

The unions' targets are warehouse and distribution centers in the Inland Empire counties of San Bernardino and Riverside, which together make up one of the nation's biggest logistics networks. The facilities handle much of the container cargo that moves through the ports of Los Angeles and Long Beach, the busiest trade gateway in the United States."They want to start here because there is such a large concentration of the industry here. It's a great sandbox and it would be a real coup if they do it," said John Husing, an economist who specializes in the Inland Empire goods-movement industry.Nearly 2,900 warehouses of at least 50,000 square feet each dot the Inland Empire. The facilities, which employ nearly 113,000 people, are operated by hundreds of companies, including some of the nation's largest retailers.