1st Quarter 2012 Sales Activity - How Did We Do?

From a sales standpoint how well did we do in for the 1st quarter of 2012 compared to previous years? Shown below are the criteria we used to tabulate the results:

• Sales information is from the CoStar database as of March 31st. My guess is that it will take a few more weeks before CoStar has all the 1st quarter sales activity recorded but this is what they’ve recorded so far.
• Transactions closed between January 1st and March 31st, 2012
• Investment properties only (no owner user)
• Property types - flex, industrial, mixed use, multifamily, office & retail
• Transactions with sales prices of $1 million or larger
• Arms length transactions (no partial conveyance of ownership)
• Transactions located between Kelso, WA and Eugene, OR including Bend

Based on these criteria the chart below compares the sales activity for the first quarter of 2012 with each of the preceding five years:

As you can see 1st quarter sales activity was less than last year but more than in 2010.  It gives me the impression that that we've bottomed out but we are bouncing along the bottom, ie, it's not getting worse and it's not getting better.  For the past four years, the first quarter sales activity has been roughly the same.   

We then analyzed the 47 closed transactions by property type:

Not surprisingly, multi-family leads the way with the most sales transactions in the first quarter.  What is a bit surprising is the number of office transactions.  This is significantly up from the past few years.  Is this a trend or an anomaly?  We'll have to wait and see how the rest of the year develops. 

Of the 47 transactions, 16 had broker representation on both sides of the transaction.  Eleven had no broker representation.  The remaining 20 transactions had only one side of the transaction represented.

If you add it all up, there were a total of 52 paydays (2 x 16 + 20).  So if you want to know your personal market share of all the broker paydays divide your number of paydays by 52. 

Shown below are the lending sources for these transactions:

The banks continue to provide the bulk of the acquisition financing for Oregon and SW Washington.  There is almost a complete absence by the life companies, Freddie & Fannie, and the credit unions.  A big surprise is the lack of seller financing.  Over the past several years seller financing was the predominant way most non-apartment transactions were financed. 

Shown below are the top 6 real estate brokerage firms based on total broker representation of closed transactions for the 1st quarter of 2012: 

The real estate brokerage community is not dominated by any one firm.  In fact, Joseph Bernard Investment Real Estate, who is ranked #1 on the list with 5 broker representations, represents less than 10% of the total market.  The top 6 firms present only 42% of the total market.

So how do I summarize the first quarter?  It's been surprisingly quiet.  I was expecting more activity than last year, and so far that has not materialized.  That's not to say it won't but it needs to pick it up a few notches if the market is going to show a sustained improvement over the previous couple of years.  Here's hoping that the coming quarter shows improved strength over the one we've just finished! 

There's an App for That! With Rising Gas Prices get GasBuddy

As a result of ongoing geopolitical tensions with Iran, as well as a refinery fire in the State of Washington temporarily reducing supply, it is not surprising that the price of crude oil continues to trend higher.  Since the end of September the price of a barrel of oil has increased by over $30.  And when oil costs more, so will the price of gasoline at the pump.  Shown below is the inflation adjusted price of gas since 1980. 

As you can see, gasoline prices with a couple of exceptions have never been higher than current levels.  Average gas prices are currently $3.59 per gallon and they are expected to top $4.00 per gallon soon.  

So how do rising gas prices affect us?  Not surprisingly, rising gas prices have a cascading affect of negative consequences. 

1. A 10 cent rise at the pump removes a whopping $11 billion annually from consumers wallets leaving less available for other goods and services.  And as you know, current gas prices have increased significantly more than 10 cents a gallon over the past few weeks. 
2. There is a direct inverse correlation between rising gas prices and consumer confidence.  Historically when gas prices have risen significantly in a short time period consumers become significantly more pessimistic.  When they're asked, "Is the economy headed in the right direction?" a majority of them will say "no."
3. When the public becomes pessimistic they get into a "hunker-down" mentality and spend even less than is actually warranted. 
4. Those businesses that are inordinately susceptible to rising gas prices will be affected the most: trucking companies, public transportation, the auto industry, the airlines will all be adversely impacted. 
5. Of course it's a political liability for both state and national politicians of both parties when prices rise at the pump.  But during a presidential year it makes for lots of political hay.  It's no surprise that Republican presidential candidates are blaming the Obama administration about rising fuel costs.  The reality is that presidents can only marginally affect oil prices with their energy policy and usually that takes years before the impact of their decisions are felt.

So the big question is, "How will rising gas prices affect the economy? Although it's hard to believe, the U.S. economy has had 11 consecutive quarters of positive growth.  But rising fuel prices may have a dampening affect on our fragile economy.   Personally, I believe our economy is resilient enough to weather the impact of rising fuel prices.  But a lot of it will have to do with our perception of reality.  If we can remain cautiously optimistic we will get through this.  

On a personal note I was introduced to a free application for my iPhone called GasBuddy.  It monitors all the local gas stations in your immediate area and shows you which gas station has the lowest gas price.  I saved 27 cents a gallon by going to the Fred Meyer gas station on Imbrie Drive instead of the gas station I normally get my gas from.  That's a savings of over $4.00 per fill up.  Not bad for a free app!

Sources: Gasoline (Inflation Adjusted), by Chart Of the Day, February 24, 2012; How Gas Prices Affect The Economy, by Financial Edge, May 24, 2011, Global Tensions put Gasoline Prices in Overdrive, Post-Gazette.com, February 24, 2012; How Gas Prices are Affecting Consumers; ABC News Blogs, by Zunaria Azki, February 24, 2012.

The Fox & The Scorpion

I recently read a short article by John Stossel of Fox News regarding the enormity of the federal deficit. We’ve all heard news stories about the U.S. debt crisis but for most of us, me included, it’s hard to grasp the magnitude of the problem. So here goes:

Imagine that there’s a family that earns an income of $21,700 a year. But this family spends $38,200 a year. The annual difference between income and expenses of $16,500 is added to their credit card debt. This family has been spending more than it brings in for many years and currently the outstanding balance on their credit card is $152,000. The interest expense on their credit card alone now costs them $4,540 annually or about 21 percent of their total annual income.

The family finally recognizes they have a serious financial problem that cannot go on indefinitely so they sit down together to determine what they can do to balance their budget. After much consideration and wrangling between family members they proudly propose cutting $385 from their spending and declare their efforts a success! It makes no difference to them that a cut of $385 is a pittance of what they need to cut in order to balance their budget. A year later, to their surprise, they actually tally the numbers to discover they spent $362 more than the previous year.

We are them! If you add eight zeros behind each of the numbers identified above that is the situation the U.S. government now faces:

The saddest part about this whole mess is no one who has the power to do anything about this seems to take this situation seriously. I believe the American public thinks that some how we’ll muddle through, that we can just borrow some more money from the Chinese if we need to or if absolutely necessary we can print more money to avoid any embarrassing economic catastrophe. Our day of reckoning can be postponed but it cannot be avoided.

Future generations will look back at us and wonder, “What were they thinking? Where was the leadership needed to avoid this economic crisis?” And before you think I’m going to only lambast the Democrats for profligate spending think again. They may talk a good game but when it comes to spending the Republicans are just as bad as the Democrats! A pox upon both their parties! Together they have spent money like drunken sailors! I know of no politician today who is willing to sacrifice his incumbency to do the right thing. Because believe me when I say this: any politician that is successful in turning this around will be voted out of office in the next election (think the recall of the Wisconsin governor). He or she will be vilified for doing the right thing because those who are feeding at the government trough will not go away quietly. They cannot be reasoned with. They will fight to the death to keep getting their government benefits (think Greek riots).

It reminds me of the story of the fox and the scorpion. The scorpion asks the fox if he can hitch a ride on his back in order to get across the river. The fox says to the scorpion, “But if I carry you on my back what will prevent you from stinging me.” The scorpion replied, “Why would I sting you, we’d both drown.” So the fox says to the scorpion jump on. Half way across the river the scorpion fatally stings the fox. The fox says, “Why did you sting me, we are both going to die.” The scorpion says, “Because it’s in my character to sting you.” And they both drown.

Those who are selfishly gorging themselves on government benefits, whether it’s the retiree who is receiving Social Security checks that are 4 times what he’s paid into the Social Security system or whether its corporate welfare in the form of tax breaks for the multinational corporations and everyone in between, don’t care what they are doing to this country as long as they get their’s. They are the scorpion who kills their free ride not realizing if everyone acts like they do that we’re all going to sink in our country’s enormous debt.

Is anyone listening to me? Does anyone care?

Sources: Dangerous Debt by John Stossel, January 5, 2012; Interest Expense on the Debt Outstanding, treasurydirect.gov

2011 Transaction Activity - How Did We Do?

From a sales standpoint how well did we do in 2011 compared to previous years?  Shown below are the criteria we used to tabulate the results:

• Sales information from the CoStar database
• Transactions closed between January 1st and December 31, 2011
• Investment properties only (no owner user)
• Property types - flex, industrial, mixed use, multifamily, office & retail
• Transactions with sales prices of $1 million or larger
• Arms length transactions (no partial conveyance of ownership)
• Transactions located between Kelso, WA and Eugene, OR including Bend

Based on these criteria the chart below compares the sales activity for 2011 with each of the preceding five years:

As you can see, the sales activity for 2011 has increased significantly over the preceding two years and was almost back to the volume of 2008.  But we are a long way from the heady days prior to the Great Recession.

We then analyzed the 272 transactions by property type:

Multifamily and retail properties continue to dominate the property transactions but office and industrial are just beginning to show signs of life.

Of the 272 transactions, 139 had broker representation on both sides of the transaction.  Fifty-two had no broker representation.  The remaining 81 transactions had only one side of the transaction represented.

If you add it all up, there were a total of 359 paydays (2 x 139 + 81).  So if you want to know your personal market share of all the broker paydays divide your number of paydays by 359.

Shown below are the lending sources for the 272 transactions:

Of those transactions where the lender was identified, 34% were either all cash transactions or seller financed.  Although that sounds like a lot that is considerably less than previous years where it was in the 40% or more range.  The banks continue to be the predominant lender in the market.

A new addition to our report this quarter is to rank the top brokerage firms based on closed transactions.  Shown below are the top 8 real estate brokerage firms based on total broker representation of closed transactions:

The commercial real estate brokerage community is not dominated by any one firm.  In fact, Marcus & Millichap, who is ranked #1 on the list with 29 broker representations, represents on 8% of the total market.  The top 8 firms represent only 36% of the total market.

Assuming there are no major economic catastrophies in 2012 (I'm thinking Europe), this coming year should continue the upward thrend in commercial real estate.

Timeless Principles of Success

A while back I was asked to speak at a conference of college students from Kazak American Free University who were visiting the United States to learn about American business.  I titled my talk, "Advice for Those Just Starting Their Careers."  This week I stumbled upon my notes for this presentation and was rather impressed (if I do say so myself) with the principles I presented.

These principles are timeless.  They are as true today as they will be 100 years from now.  And they are not just for young adults getting started on their careers.  They are for everyone, young and old.  And they are not necessarily for business professionals - they are truly for everyone.  For the sake of brevity I have condensed my talk into bullet points.  I wish I knew whom to credit for these timeless insights but unfortunately I do not have the source.  All I know is they didn't come from me (I'm not that wise).  I hope you enjoy them as much I have.  Here goes:

LEARNING

• Always be learning.  Those who succeed in life are continuously learning.
• Seek out someone who will mentor you - someone who sees your potential and is willing to develop it.
• Learn the art of listening.  It is safe to say that you never learned a single thing when you were talking.
• Allow yourself to make mistakes and then learn from them.

TIME MANAGEMENT

• Remember life is precious.  Don't waste it on the unimportant.
• Set both personal and professional goals.  Decide exactly what you want to do, write it down, set a deadline and then do something everyday to move towards achieving that goal.
• Balance yourself - don't focus just on your career.  Allow time for things that will help your emotional, physical and spiritual well being.

CAREER DECISIONS

• Never seek a job; rather seek a career.
• Be willing to take calculated risks.
• Determine what you are passionate about and then stick to it.  Don't let anything sidetrack you.
• Have it as your goal to be the best you can be in your profession.

ATTITUDES TO ADOPT AS YOUR OWN

• Have a positive mental attitude.  Avoid being around people who are negative all the time.
• Be proactive not passive about life.  Accept complete responsibility for your circumstances.  Don't blame it on others.
• Honesty is an invaluable character quality.  Tell people what they need to hear, not what they want to hear.
• Be a person of integrity.  Integrity is defined as the strict adherence to a standard of value or conduct.  Integrity is not what we do when it serves us.  It is who we are when no one is looking and it is how we treat people who we cannot benefit from.

In closing, I read a quote this week that inspired me that I would like to share with you:

"Be daring, be different, be impractical, be anything that will assert integrity of purpose and imaginative vision against the play-it-safers, the creatures of the commonplace, the slaves of the ordinary." Sir Cecil Beaton

It is my hope that each of you makes a remarkable impact on your world in 2012.