Pop-Up Store Leasing Provides Opportunity for Small Businesses

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Pop-Up Store Leasing Provides Opportunity for Small Businesses

Small and start-up business entrepreneurs have the opportunity to test, market and sell their products and services in a retail mall or shopping center, with minimal lease liability, through pop-up store leasing. Increasingly more malls and shopping centers now lease to “pop-up” stores for periods as short as 30 days, even during the busiest time of year for retail shopping. In fact, many shopping centers now have space allocated year-round for pop-up stores, as a means of attracting more shoppers and minimizing vacant space.  Wondering if your business would do well in a particular shopping center or mall?  Try a pop-up store!

pop-up-shop

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How To Pay No Income Tax for 18 Years While Making $1,000,000,000

The US Tax Code gives real estate developers and managers special tax breaks and benefits not available to others, allowing a certain presidential candidate to pay no income taxes for decades while profiting to the tune of almost $1 Billion.  Here’s how: Let’s say a fellow named Donald buys a property for $1 billion, using only $300,000 of his own money and financing $999,700,000 with a bank (subsequently bailed out by taxpayers).  When the investment fails and the property is sold at a loss, the bank absorbs almost all of that loss.  However, (likely in part due to Donald’s previous lobbying expenditures) the Tax Code allows Donald to write off that loss (as a “net operating loss”), for the year it took place, plus the next 15 years, plus the 2 years prior to the loss, for a total of 18 years! So, using this special tax write-off, after a “paper loss” of over $900 Million, Donald could offset $50 MILLION PER YEAR in taxable income for 18 years, thereby paying no income taxes for almost 2 decades.  Any US citizen (or illegal alien) who paid any income tax over the last 18 years can take solace in knowing they probably paid more than a multi-billionaire.

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Office Space Trend

According to CEL & Associates, as of 2016, only 10 of the top 50 occupations with the most job openings require any office space; and over 40% of the U.S. workforce telecommutes.  The average white-collar worker spends only 30% of his or her time working in an office, and the average individual workspace is occupied only 55% of the time in a normal work week. The average U.S. tenant has 33% of its space as excess shadow space. Co-working/Shared workspace now comprises 27 million square feet, and will continue to grow for the next several years.

office-space

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San Diego’s Housing Shortage Means Rising Prices and Rents

San Diego County has a severe housing shortage caused by the inability to bring to market new single-family or multi-family units, which will likely continue for the foreseeable future. The result will be continued price increases in the sale and rental of homes. Those few units which can be developed will be located far from the locale of present and future jobs, resulting in longer commutes, greater congestion and increasing employee and employer dissatisfaction. Even if a shift in housing preferences to multi-family occurs, this will take time and not likely be a full shift. The housing shortage will also be exacerbated by aging Baby Boomers choosing to stay put, rather than downsizing or relocating, due to limited alternatives.

housing-shortage

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Negative Interest Rate Policy – Paid to Borrow & Charged to Save?

Ever hear of a monetary policy by which companies and households get paid to borrow and charged to save money?  Seemingly crazy, this negative interest rate policy (“NIRP”) continues to spread around the globe much like a virus, having already infected central banks in Europe, Japan and other countries accounting for 25% of the global economy. (Thus far, Federal Reserve Chair Yellen has indicated no plans to implement a NIRP in the USA.)

A negative interest rate means the central bank, and possibly private banks, will charge negative interest (i.e., below zero percent), so that instead of receiving interest on deposits, depositors must pay to keep their money with the bank. The policy aims to incentivize banks to lend money more freely, and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.  Unfortunately, scant evidence exists to support this outlandish policy – suggesting it could just as easily boomerang. While encouraging lending in theory, negative interest rates squeeze bank profit margins, making them less willing to extend loans. If, conversely, banks try passing on negative rates to depositors, those companies and households may simply withdraw their money, stuffing it under the proverbial mattress and denying banks a crucial funding source.

Negative Interest rate image

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2016 Third Quarter Review for San Diego CRE

  • Interest rates and cap rates remain low
  • Inflation and unemployment remain low at about 2% and 5%, respectively
  • New tech jobs are coming as Google and Bizness Apps locate facilities in San Diego

Despite low interest rates, low vacancy rates, and rising rents – record high prices, low cap rates and fears of a potential downturn have begun to hamper CRE investment. We still see promising (and less risky) opportunity in certain sectors though, such as industrial and residential.

quarterly report

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Chinese Investment in U.S. Real Estate Wanes

U.S. real-estate sales to Chinese buyers fell for the first time since 2011, to $27.3 billion. U.S. realtors say China’s capital controls and currency depreciation, resulting in a cheaper Yuan, have curbed potential buyers. Still, the National Association of Realtors reports the average price Chinese investors paid for homes in the U.S. rose by more than 12% between 2015 and 2016.  California receives about one-third of this foreign investment (compared to New York’s 10%), and California also caters to the lower priced homes of the Chinese market, making it the most vulnerable state to declining Chinese investment.

Chinese

 

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REVERSE MORTGAGES – Still a Wolf in Sheep’s Clothing

Home equity represents the wealth of most middle-class Americans. Ideally, that wealth may be transferred to the next generation upon the death of a homeowner. However, reverse mortgages provide yet another financial instrument to confiscate the wealth and stunt the growth of the middle class by encouraging homeowners to extract decades of accumulated home equity in order to supplement their retirement. In part because the federal government now regulates reverse mortgages, the upfront costs may be exorbitantly high. These costs, including points, servicing fees, and mortgage insurance premiums, amount to free cash for the bank and mortgage insurance companies — which have zero risks and provide no actual services. In effect, a reverse mortgage simply transfers wealth from the middle class to the aristocracy. When the “owner” of the home dies, the government pays the bank any difference between the loan balance (principal and interest) and the sale price of the home. If the heirs want to keep the home, they must repay the loan in full. If the amount owed is more than the value of the home, the heirs must pay 95% of the loan balance to the bank, with the government paying the remaining balance. The bank serves no purpose in the transaction other than to profit, without any risk, by extracting cash from the government and the homeowner. (It should also be noted that a reverse mortgage may render the homeowner ineligible to participate in other government programs or to receive other benefits.)

As an example of a reverse mortgage, assume a 67-year-old woman with a $370,000 home who withdraws a lump sum of nearly $200,000 (at a 5.65 percent fixed rate). The initial costs at closing could easily reach $16,563, according to ReverseVision, a reverse mortgage software company. (In addition, another $5,518 in servicing fees — to cover those $35 monthly fees over the estimated life of the loan — would be set aside.) Over time, interest and other costs continue to accrue on the mortgage. If the borrower dies at age 80, and her home is worth $720,700 at that time, her heirs would be left with just $100,000. And the bank will have pocketed about $364,000 in interest.

wolf

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CRE Investors Should Exercise Caution As Prices Peak

As commercial real estate (“CRE”) prices hit an historical peak for retail, industrial, office and multi-family investment properties, the earnings yields on other assets like stocks bonds have declined significantly, making steep CRE prices still seem more reasonable from an asset pricing perspective. However, CRE investors would be wise not to over-leverage with cheap debt, such that a future bump up in interest rates, slowing of growth, decline in rents and/or increase vacancies jeopardizes the investment. Remember what happened between 2007-2010, and be smart and realistically conservative when underwriting any CRE investment.

CRE-vs-Residential (1)

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Mortgage Rates Fall – Average 30-Year Fixed Rate at 3.61%

Long-term U.S. mortgage rates fell this first week of May 2016, following the Federal Reserve’s decision not to raise its benchmark interest rate. The decline put long-term mortgage rates near their low levels for the year, offering an inducement to prospective home buyers during the spring buying season. Mortgage buyer Freddie Mac stated the average 30-year fixed-rate mortgage declined to 3.61% from 3.66% last week — far below its level a year ago of 3.80%. The average rate on 15-year fixed-rate mortgages slipped to 2.86% from 2.89% last week. Rates on adjustable five-year mortgages averaged 2.80% this week, down from 2.86% last week. These averages don’t include extra fees (points), which most borrowers pay to get the lowest rates. The average fee for these mortgage loans approximates 1/2 of 1% of the loan amount.
Mortgage Rates

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