I'm Depressed And To Complicate Matters, Nothing Is Wrong
Up until recently, I’ve been an avid news junky, reading two or three newspapers a day, watching the news on TV for an hour a day and checking Yahoo’s news every few hours to see what’s happening. But in the last year it’s gotten so depressing that I’m limiting myself on how much news I inject into my mind in any given 24-hour period.
The stock market is up, next day its down, inflation is high, next day inflation is low (I don’t know about you but my cost of living is increasing at a substantially higher rate than the government claims). Everyday our citizen soldiers die in Iraq's civil war or Afghanistan, the war in Israel is still on as I write and hopefully is over by the time you get this issue but it could, with some bad luck, lead to WWIII. BUT what’s really scary is that the Wall Street Journal today had an article on how 200,000 religious right individuals are gathering to support Israel so the day of rapture comes SOON. That’s scary, praying for the end of the world? Sick, sick, sick.
Besides innocent civilians dying everyday, we have immense trade deficits along with substantial overspending (and that’s after discounting for the costs of “war”) by our beloved government and again that’s with Republicans in charge. Then add all the political rhetoric we hear every day from the politicians (notice we no longer have statesman-only politicians running our country) about idiotic laws that benefit no one and do little to serve the public's interest. The president has a 39% approval rating, congress is at 25% and 60% of Americans believe we, as a nation, are headed in the wrong direction, plus 60% of the parents in America believe their children's economic future is poor. I could go on and on, but Ann contends that I get too depressing, so I’ll drop it here. But FYI, my life in general is fine. Business is decent, my personal world is great and, besides the world's problems, I have no real complaints.
So how does all this relate to retail real estate? Well the economic cost of “fighting terrorism” has to come back to haunt us in the near future, similar to what happened in Vietnam, when inflation was running 12% to 13%. Add to this the government and trade deficits and you have a nation that’s broke. And citizens of broke nations don’t buy as much, which means we don’t need as many centers, brokers, developers or retailers. I’m not saying the sky is falling, what I’m saying is we’re at a point in time in which, IF we don’t make major changes, then the sky will fall. In the meantime, let’s enjoy the sunshine.
On a more pleasant topic, Ann, Alyson, Terry, Josh and myself took the train to Beantown for the Boston ICSC dealmaking show where 1,500 retail real estate professionals (most of the time) gathered to wheel and deal at the first show after Vegas. The good news is attendance was up 300 (25%) from last year and, while Boston is traditionally a smaller show than most, an increase of 25% is always great. The cocktail party the night before the show was active with everyone busy networking, gossiping and either complaining or bragging. The tone, while optimistic, was concerned about the apparent signs of a slowdown the individuals are personally experiencing, not based on what the news reports. Of course, most of the pessimism was from the older dealmakers who have encountered numerous slowdowns in their business life, not the Next Generation that has never encountered anything but a growing industry. A large number of the exhibitors complained about a “slow floor” but I personally believe that there was no real slowdown, this was the first year the event was held at the The Boston Convention and Exhibition Center and the aisles were 10 feet wide, providing more walking space for the attendees. The slowdown was more perception than reality. I personally felt the show went well for the size. I overheard one retailer complain that there were too many “LAZY” brokers, developers and retailers who don’t attend events such as this, but should. I don’t know if lazy is the correct word, but I wholeheartedly agree with the statement’s intent.
I had a somewhat embarrassing conversation with Jeffrey James of Lamar at the cocktail party. While having a philosophical discussion on the purpose of life, we somehow got onto a discussion of business (how boring) and Jeff asks if I had any centers for sale. I said yes and briefly outlined two deals. He then asked why I hadn’t offered his company the properties before, not only because we’ve known each other longer than either can remember but because his company advertises with us all the time. I thought about his question for 30 seconds and than answered, “Because I’m not too swift.” I’ve talked to more companies then I can count about the centers but “forgot” to present ‘em to a company I already have a relationship with. Stupidity is the only answer and hopefully I do remember Sales 101’s number one rule; talk to everyone about your center for sale/lease, especially if they're a friend. I’ll repeat a true tale of not following this rule. Way back when Abe was still president, I started TKO and got an assignment to lease a center in Detroit. I worked on the project for three months when the landlord informed me they just did a deal with Fayva Shoes (any deal the owner did was exempt from paying me a commission). Fayva’s VP of Real Estate was a friend of mine, Jack Podger, so I called Jack up and asked why he did a deal direct with the owner and not through me. His response was: “Ted, you never called me but the landlord did. You have to offer me the property in order for me to say yes.” A very valuable lesson I learned that served me well for years but I must have forgotten in my old age, but it won't happen again.
Another mistake I made involved the same two centers. I put together a brief package on both of the centers for sale, had ‘em made into PDFs and then called and emailed the information to companies aggressively acquiring centers. Every time I found an interested party, they would ask a question not in the package and I’d either research the answer or if I already had the info, emailed the requested info out. This must have happened 25 times for the two centers. Now if I hadn’t been lazy/stupid or forgetful, I would have spent an additional hour or two initially putting together a more complete package, making the potential buyers happy from the start and saving me time. Dumb, de, dumb, dumb, dumb.
Oh, another interesting conversation I had in Boston. We were talking about the changes happening in the industry as the old timers retire/die and the “kids” take over the industry. One of the people at the table said that the typical person entering the industry today has an MBA (which is not correct) and that type of “personality” is making drastic changes on how we act and think. I agree to some extent but believe that the vast majority of MBA’s entering retail real estate are NOT going after the leasing jobs (it’s beneath them) and are more involved in finance or acquisition. Leasing requires that you get your hands dirty and too many MBAs are not comfortable lying in dirt. But yes, they are making major changes in the industry as they figure out ways to put less cash into a deal and carry more debt (too much debt in my opinion), which is fine for immediate growth but bad for future earnings. But the one thing we all agreed on was the industry of 10 years from now will have nothing to do with the industry we're in today.
One last comment. In conversations with three or four institutional buyers, they all mentioned how they're being offered a lot more deals from owners that are either interest-only or adjustable rates, which no longer have a positive cash flow. These deals were done in the heydays of low interest rates. And with the increase in interest rates these owners are in trouble and have to sell fast.
The stock market is up, next day its down, inflation is high, next day inflation is low (I don’t know about you but my cost of living is increasing at a substantially higher rate than the government claims). Everyday our citizen soldiers die in Iraq's civil war or Afghanistan, the war in Israel is still on as I write and hopefully is over by the time you get this issue but it could, with some bad luck, lead to WWIII. BUT what’s really scary is that the Wall Street Journal today had an article on how 200,000 religious right individuals are gathering to support Israel so the day of rapture comes SOON. That’s scary, praying for the end of the world? Sick, sick, sick.
Besides innocent civilians dying everyday, we have immense trade deficits along with substantial overspending (and that’s after discounting for the costs of “war”) by our beloved government and again that’s with Republicans in charge. Then add all the political rhetoric we hear every day from the politicians (notice we no longer have statesman-only politicians running our country) about idiotic laws that benefit no one and do little to serve the public's interest. The president has a 39% approval rating, congress is at 25% and 60% of Americans believe we, as a nation, are headed in the wrong direction, plus 60% of the parents in America believe their children's economic future is poor. I could go on and on, but Ann contends that I get too depressing, so I’ll drop it here. But FYI, my life in general is fine. Business is decent, my personal world is great and, besides the world's problems, I have no real complaints.
So how does all this relate to retail real estate? Well the economic cost of “fighting terrorism” has to come back to haunt us in the near future, similar to what happened in Vietnam, when inflation was running 12% to 13%. Add to this the government and trade deficits and you have a nation that’s broke. And citizens of broke nations don’t buy as much, which means we don’t need as many centers, brokers, developers or retailers. I’m not saying the sky is falling, what I’m saying is we’re at a point in time in which, IF we don’t make major changes, then the sky will fall. In the meantime, let’s enjoy the sunshine.
On a more pleasant topic, Ann, Alyson, Terry, Josh and myself took the train to Beantown for the Boston ICSC dealmaking show where 1,500 retail real estate professionals (most of the time) gathered to wheel and deal at the first show after Vegas. The good news is attendance was up 300 (25%) from last year and, while Boston is traditionally a smaller show than most, an increase of 25% is always great. The cocktail party the night before the show was active with everyone busy networking, gossiping and either complaining or bragging. The tone, while optimistic, was concerned about the apparent signs of a slowdown the individuals are personally experiencing, not based on what the news reports. Of course, most of the pessimism was from the older dealmakers who have encountered numerous slowdowns in their business life, not the Next Generation that has never encountered anything but a growing industry. A large number of the exhibitors complained about a “slow floor” but I personally believe that there was no real slowdown, this was the first year the event was held at the The Boston Convention and Exhibition Center and the aisles were 10 feet wide, providing more walking space for the attendees. The slowdown was more perception than reality. I personally felt the show went well for the size. I overheard one retailer complain that there were too many “LAZY” brokers, developers and retailers who don’t attend events such as this, but should. I don’t know if lazy is the correct word, but I wholeheartedly agree with the statement’s intent.
I had a somewhat embarrassing conversation with Jeffrey James of Lamar at the cocktail party. While having a philosophical discussion on the purpose of life, we somehow got onto a discussion of business (how boring) and Jeff asks if I had any centers for sale. I said yes and briefly outlined two deals. He then asked why I hadn’t offered his company the properties before, not only because we’ve known each other longer than either can remember but because his company advertises with us all the time. I thought about his question for 30 seconds and than answered, “Because I’m not too swift.” I’ve talked to more companies then I can count about the centers but “forgot” to present ‘em to a company I already have a relationship with. Stupidity is the only answer and hopefully I do remember Sales 101’s number one rule; talk to everyone about your center for sale/lease, especially if they're a friend. I’ll repeat a true tale of not following this rule. Way back when Abe was still president, I started TKO and got an assignment to lease a center in Detroit. I worked on the project for three months when the landlord informed me they just did a deal with Fayva Shoes (any deal the owner did was exempt from paying me a commission). Fayva’s VP of Real Estate was a friend of mine, Jack Podger, so I called Jack up and asked why he did a deal direct with the owner and not through me. His response was: “Ted, you never called me but the landlord did. You have to offer me the property in order for me to say yes.” A very valuable lesson I learned that served me well for years but I must have forgotten in my old age, but it won't happen again.
Another mistake I made involved the same two centers. I put together a brief package on both of the centers for sale, had ‘em made into PDFs and then called and emailed the information to companies aggressively acquiring centers. Every time I found an interested party, they would ask a question not in the package and I’d either research the answer or if I already had the info, emailed the requested info out. This must have happened 25 times for the two centers. Now if I hadn’t been lazy/stupid or forgetful, I would have spent an additional hour or two initially putting together a more complete package, making the potential buyers happy from the start and saving me time. Dumb, de, dumb, dumb, dumb.
Oh, another interesting conversation I had in Boston. We were talking about the changes happening in the industry as the old timers retire/die and the “kids” take over the industry. One of the people at the table said that the typical person entering the industry today has an MBA (which is not correct) and that type of “personality” is making drastic changes on how we act and think. I agree to some extent but believe that the vast majority of MBA’s entering retail real estate are NOT going after the leasing jobs (it’s beneath them) and are more involved in finance or acquisition. Leasing requires that you get your hands dirty and too many MBAs are not comfortable lying in dirt. But yes, they are making major changes in the industry as they figure out ways to put less cash into a deal and carry more debt (too much debt in my opinion), which is fine for immediate growth but bad for future earnings. But the one thing we all agreed on was the industry of 10 years from now will have nothing to do with the industry we're in today.
One last comment. In conversations with three or four institutional buyers, they all mentioned how they're being offered a lot more deals from owners that are either interest-only or adjustable rates, which no longer have a positive cash flow. These deals were done in the heydays of low interest rates. And with the increase in interest rates these owners are in trouble and have to sell fast.
posted by tedkraus at 12:48 PM
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