We Are What We Think

I noted an interesting report lately about an observation that was made of championship Canadian youth hockey teams. It seems that there was an identifiable pattern to the birth months of almost every top player on the teams. How could Canadian babies born in the first few months of the year be the best hockey players ? Some cosmic planet alignment, does watching hockey on TV effect your baby, newborns first sight of winter make them natural hockey players ?? As I turns out, the children born in the first few months of a year are the oldest in their class in school. So ? Well, a child who is almost a year older than another child is 20% older in kindergarten. That child is generally more developed mentally and physically; taller, quicker, faster, more coordinated. Who do you think tends to be a better performer in the classroom and in the playground ?

This early experience of achievement or underachievement as compared to their peers sets a correspondingly strong early pattern of encouragement or discouragement in the minds of these children. These children tend to grow up with well seated expectations of success and failure in their lives. And here we have the championship hockey youth with almost exclusively early  birth months.

This so called “Matthew Effect” which almost seems to be a self fulfilling prophesy points up the important nature of our expectations of ourselves. It is important to limit our failures, since our success expectation is confused with a failure and becomes less dominant in our thinking. Knowing about and understanding the power of our engrained expectations is an important factor in our success.

Another equally interesting observation was the “10,000 Hour Effect”. Studies of world class performers in many different vocations; art, music, designers, medical fields, pilots, racecar drivers, etc. all needed at least 10,000 hours of practice to achieve world class results. Wow ! However without talent, 10,000 hours did not guarantee high performance. So it  seems that Achievement = Talent + Practice. Lots of practice. The closer we look, the bigger the role of practice plays in achievement. Studies show that elite performers prepare 2-3 times as much as other in their field. How much to you really devote to preparation in your field ? Are you ‘good enough’ and content ? .Or do you strive for a world class status in your field ?

We all can do a better job if we maintain high expectations of success and follow it up with the level of preparation necessary to achieve it.

Industrial Real Estate Market Status and Forecast

Current Market: Pessimists can point to lackluster statistics through mid year. Optimists can point to glimmers of hope and some upticks in the numbers. Gross absorption was the highest in 6 quarters, with vacancy edging downwards a bit. Clearly the dull national economy continues to influence our local market with Q2 gross absorption of 1 million sf., with modest leasing activity. Vacancy edged downward a tiny bit to 14.75%, just below the all time high. Unfortunately, net absorption through Q2 was a negative 1.4 million sf. New speculative construction continues to be zero and we expect this to continue into 2010. Asking rates on new space have softened. Firms moving into the area are finding excellent deals when developers have competed for the few tenants that are out there. Some submarkets have extremely high vacancy rates while others are more in balance. The I-80 east corridor, for example improved to 19%, but still has high va-cancy. The Stead submarket is slightly over 15%. Either of these markets provide excellent buy-ing opportunities for big box tenants. The industrial portfolio investors are patient and we are not anticipating market asking pricing dipping lower than they already are now.
Reno’s overnight/next day distribution to the 11 western states remains a strong factor for relocations with tax advantages, friendly business climate, favorable weather, high availability of trucking and reasonable workmen’s comp rates closely following. Tho the economy is a bit dull now, the continually escalating cost and burdens of doing business in California continues to funnel a steady stream of business to Nevada. Midwest and Eastern firms seeking western distri-bution hubs is also a strong market for Reno’s growth.

Lease Rates: As market vacancy rates have climbed through 2009, asking lease rates have now softened slightly. However effective rates on completed deals have been very competitive along with added concessions by developers. Some sublease spaces have pricing at unheard of rates, such as $0.15/sf/Mo.NNN. Overall availability is currently excellent with new and second generation product coming on line and should be adequate across size ranges. We anticipate competition between landlords will continue in this pro-tenant market, with developers aggressively pursuing every transaction. However, when the vacancies start to fall again; then we anticipate price escalations, as the market finds better balance. Average Pricing: 5-15ksf: $.72, 15-40ksf: $.38, 40-60ksf: $.35, 60-100ksf: $.34, 100ksf+: $.335/sf/mo./nnn. Taxes, Insurance and maintenance charges on new space are about $.075/sf/mo. Expect rents to maintain until vacancy drops; then increase in spring 2010.

Land Prices: Demand for land continues to be slow in 2009. Lenders increased scrutiny of loans and the a dull economy has slowed interest in smaller parcels. Truckee Meadows land saw over $9/sf. Larger tracts had very slow sales totals as well with the exception of TRIC on I-80 west of Reno. Pricing has maintained in this sector as well at $2.50-$4.00+/sf.. We anticipate static land costs due to supply and demand and static water rights values in 2009.

2009 forecast: The Northern Nevada region experienced a relatively dull absorption in early 2009. With developers putting up no new construction,. when the economy stabilizes, we see pent up demand for new space absorbing the available inventory quickly, then space may become somewhat in short supply with pricing following upward accordingly.

Make ‘Em Feel Special

This blog entry will be short and sweet.

With the ongoing economic downturn, there is an extreme focus being placed on business efficiencies; how to cut costs, how to do more with less, how to look for new ways to make a buck, etc.. It seems the more we read the more we should be adding our ‘To Do List’, in order to keep our heads above water until the world normalizes again.

I don’t want to add to anyone’s ‘To Do List’, but I do want to give you something to ponder for a few moments and see if it prompts some creative thinking. What if a client of yours had an interaction with you or someone in your business today and came away feeling like they were treated in a way that made them feel special ? In fact very special. How about, so special that they would not consider doing business with your competition no matter what your competition could do to lure them away ?

If that were the case, that means that your client gets far more from you and your business than the services or products you provide. That would have to mean that your client would be satisfied at a deeper level than just getting your product delivered to his docks or the service you provide completed. It would mean that he feels that his relationship with you and with your business is respected, appreciated, and valued very much. Your client would feel that HE / SHE is truly valued; not their purchase order.

So as you take that call this morning, or return that email or greet the client as he walks into your office, how about we make them feel special. Not just try, but actually do it. Make them feel so special that they come away from the interaction feeling that they are dealing with the best place in the world to be doing business.

So, this ended up not quite as short as I expected, but rather than adding anything to our “To Do Lists”, you might just be thinking a bit differently about your business today that could turn out to benefit you significantly, leaving your clients feeling good about it all in the same process. 

And taking a bit of that home with you tonight won’t hurt either.

Financial Outlook: June 2009

Submitted by Phil Mahoney

I was fortunate to spend a few days with the financial professionals at J.P. Morgan and get their opinions and outlook for the economy, markets and where we possibly go from here.  I will share what I feel is pretty insightful information, but remember these are my comments taken out of the meetings are condensed due to the shear amount of information we went over.  If you would like to discuss them, please give me a call and I’ll be glad to go into more detail:

Housing – The bubble is most certainly over and we are seeing signs of stability.  This does not mean recovery, because in order to get that we will need money flowing more easily from the banks, along with confidence from buyers.  According to the U.S. Census Bureau (2004) the number of marriages each year in the US is about 2.2 million or at a 7.5% rate (divorce is 3.6%).  How many of these newlyweds will want to live with their parents or in-laws?  There will be buyers of homes.  Housing starts and inventories or homes are way down from their high levels, so we should see some new building by the end of the year.

Inflation – We will probably not have inflation until the end of the year at earliest – perhaps as long as 18 months from now.  We need Growth, then Jobs, then Profits and then comes inflation.

Inventories – We are going into a “classic” inventory cycle where inventories are much lower and as demand picks up, production will need to follow.  Take for example automobiles – millions are scrapped each quarter here in the US, and the congress is thinking about giving rebates to people to trade their old ones and buy new.

Unemployment – It will continue up and perhaps hit double digits by the end of the year.  It is a lagging indicator though and any attempt to gauge the economy by that number will leave you months behind.  The depression of the 1930’s had 25% unemployment and even in the pre-war 40’s it was still in the teens.

Federal Reserve/Government – Generally positive on the stimulus package given historical times (like the 30’s) when government cut taxes and didn’t spend money.  Most economists agree this was a major problem and caused the depression to run several more years than if they had stimulated the economy.  WWII was the biggest influence in getting the country out of the hole and if you think of all the guns and tanks we purchased and then ruined or just left behind.  So nonproductive spending isn’t as bad as it seems.  There is some criticism of the current Fed. however, and interest rate movements were discussed.  When the Fed. saw the banking and housing issues occurring, they should have cut all the way – right away.  If the economy is better they should say so – because if people believe it’s better they will buy now in order to get good prices.  This would lead to quicker growth – otherwise we all wait for one more cut in interest rates or prices.
Valuations – Cheap, cheap, cheap – but don’t try to time the market or overextend yourself because it may take a fair amount of time to right ourselves.  Asset allocation is still the preferred way of investing, and consider dollar-cost-averaging due to volatility.

Where to go? – Real assets.  Think real estate, think stocks, but be wary of those with too high of dividends.  They may still cut them in order to protect balance sheets.  Many corporate bonds and munis are still attractively priced.  Remember to consider your goals and objectives as well as risk requirements before investing.

What could go wrong with our scenarios? – We may be building a new generation of savers.  The savings rate has gone to 4.2% from negative numbers just a few years ago, cutting into spending.  If you remember where Japan went from 1989 when some real estate values in the Ginza District went for the equivalent of $1,000,000 a square meter, then into a recession for the next 10 years.  A big part of which was the compulsive savings by their population which in early 1990s went to 15-18%!
Oil prices could soar again, possibly due to a Middle East war.  Hurricanes, another swine flu, you name it, it can screw things up.
Above all – Remember the three most dangerous words:

“Wait and See”

No one can see the future, but we know that this has been an extraordinary time and with it comes extraordinary opportunities.  Right now there is somewhere in the neighborhood of 5.5 Trillion dollars in short-term money market, T-Bills and cash getting nearly nothing in returns.  It will come out sooner or later, and when it does you need to be allocated to those areas that fit your risk as well as goals.

Phil

Is it safe to go back in the water?

My last Blog entitled “? Storm Clouds Breaking Up ?” was received like ‘SaniHut sail’ that floated ashore to Tom Hanks character in the motion picture Cast Away. Reports of good news is welcome for sure and we’re getting more every month, it seems.

To add another perspective, I found my old notes from an unwritten blog article dated September, 2008. The theme was that while we are still focusing on the positive, to continue to ignore the economic failings is like ignoring the 1000# gorilla in the living room. I was still searching for any positive signs at the time, gave up and wrote nothing.

 The interesting aspect here is that 8 months later, we DO have lots of positive factors today to point to. Yes, it seems safe in certain areas to go back into the water and we’re seeing it happening  But, wow what  a time we’ve had and there is still more to go through before we’re back to feeling good again.

We’ve had some bitter medicine for sure, but it was medicine none the less. Medicine that will ultimately make us all stronger. We have already learned to embrace the virtue of patience more closely. There is a positive we can all take away from this.

 

Digressing a bit here and taking a higher altitude look at our situation, it seems like an appropriate time to be open to the fact that in all systems, social, economic or natural there are forces of expansion / contraction, life / death, yin / yang.   

Some consider these forces as opposites and conflicting elements. Yet the continual evolution of any system always ultimately finds all forces present. In order for growth, both forces must be present; this is inevitable.

The photos in this blog have been of the forest fire that kills both the living and the dead within the forest ecology to make way fr a newer, stronger forest to spring up. We’ll all emerge from this with a broader perspective. A more balanced approach to our businesses and our lives.

We had the pedal to the metal for a long time, we got used to the speed, we felt it was normal. Then the motor broke down and we’ve coasted to a near stop. In a short time, we went from high speed growth to a black, somewhat charred way of life. From expansion to contraction. The contraction will seed a new growth pattern.

From that growth, new direction for our survivor businesses and families and ourselves.  And as in nature, our economic and social systems will be better for it in the long run.

? Storm Clouds Breaking Up ?

I would hate to jinx anything here, so I will simply report a few observed facts. The Reno Gazette Journal Business section of 4/10/09 reports the following: “Wells Fargo Reports $3 Billion 1Q Profits”, this is a record first quarter earnings for the bank, surpassing analysts’ estimates. Anticipation is high as other banks report their Q1 status next week.

“Economy Skidding Along Bottom”, fresh signs show economic decline may be leveling off. Stock investors, shoppers and home buyers are less jittery. Once-frozen credit markets are slowly thawing. Economic indicators that had been going from bad to worse are showing signs of stabilizing. There were fresh signs Thursday that the full force of the recession may be petering out. A strong report from Wells Fargo, a drop in unemployment benefit filings and several retailers predicting solid April sales.

“Wall Street Logs Fifth Straight Week Of Gains”, Stocks surged Thursday to their highest level in two months. NASDAQ posted its highest finish of the year, giving it a gain of 4.8% for 2009. The blue chips hadn’t logged five straight weekly gains since October 2007, when the stock market hit it’s peak. Since the rally began on March 10th, the Dow has gained 22 %, the best performance since 1933.

These articles were not cherry picked over a period of time; they were all in one daily paper !

An internet article noted that consumers are still buying in lots of areas as well.

Personal Care Items: We still have to brush our teeth and look good.

I Phones and Blackberries: We’ve got to be ready for that next sales call while still staying in touch with every conceivable global event, 7-24. ( gotta wonder if we really need all that info. or does it really just dilute our focus ?).

Video Games: I guess we need the escape, however fitness videos are selling well too.

Gym Memberships, Toys, Car Maintenance, Casual shoes, Restaurants, Movies and Mini-Laptops (aka internet books ).

So the retail sales arena isn’t really as bad off as we thought.  

And lastly, our local newspaper has started a new section called ( drum roll…..)
“GOOD NEWS” . A transparent attempt to fend off their well deserved criticism that news outlets only report doom and gloom, thrive upon it and create it if need be. However, I’ll give credit to them for offering it up and I sincerely hope it lasts. In today’s world, I really do enjoy hearing that John Gilroy was promoted to jr. assistant shift manager at the pet shop, that Girl Scout Troop #258 won the Reno cookie sales competition, that George and Thelma Karras celebrated their 45th wedding anniversary at the Elks Lodge, surrounded by their 11 grandchildren and that Sara Jones’ bicycle was only misplaced at school and not stolen. Makes me feel like I am living in Mayberry, USA and that makes me feel good for same odd reason. 

AND…..the Reno Aces open their new baseball park in a matter of days !!!

All in all it should give us reason for new hope. Come on, you have to admit that things ARE looking up !

Now go out and buy something.

Spring ’09 Market Update

Current Market: The short version is: The dull national economy continues to influence our lo-cal market with annual gross absorption of 3.5 million sf; just 70% of annual averages. Vacancy is at an all time high at 13%, leasing activity is down 30%. New speculative construction has ground to a halt. Asking rates on new space have softened, firms moving into the area are finding excellent deals when developers have competed for solid, credit the tenants that are out there. Some submarkets have extremely high vacancy rates while others are more in balance. The I-80 east corridor, for example has a 25% vacancy, while the Stead submarket is slightly over 12%. Either of these markets provide excellent buying opportunities for big box tenants. The industrial portfolio investors are patient and we are not anticipating market asking pricing dipping lower than they already are now.
Reno’s overnight/next day distribution to the 11 western states remains a strong factor for relocations with tax advantages, friendly business climate, favorable weather, high availability of trucking and reasonable workmen’s comp rates closely following. Tho the economy is a bit dull now, the continually escalating cost and burdens of doing business in California continues to funnel a steady stream of business to Nevada. Midwest and Eastern firms seeking western distri-bution hubs is also a strong market for Reno’s growth.

Lease Rates: Tho market vacancy rates have climbed through 2008, asking lease rates have now softened. However effective rates on completed deals have been very competitive along with added concessions by developers. Some sublease spaces have pricing at unheard of rates, such as $0.15 – $0.20/sf, NNN. Overall availability is currently excellent with new and second generation product coming on line and should be adequate across size ranges. We anticipate competition between landlords will continue in this pro-tenant market, with developers aggressively pursuing every transaction. However, when the vacancies start to fall again; then we anticipate price escalations, as the market finds better balance. Average asking Pricing: 5-15ksf: $.70, 15-40ksf: $.37, 40-60ksf: $.34, 60-100ksf: $.33, 100ksf+: $.325/sf/mo./nnn. Taxes, Insurance and maintenance charges on new space are about $.075/sf/mo. Expect rents to maintain until vacancy drops; then increase in late 2009.

Land Prices: Demand for land continues to be slow in 2009. Lenders increased scrutiny of loans and the a dull economy has slowed interest in smaller parcels. Truckee Meadows land saw over $9/sf. Larger tracts had very slow sales totals as well with the exception of TRIC on I-80 west of Reno. Pricing has maintained in this sector as well at $2.50-$4.00+/sf.. We anticipate static land costs due to supply and demand and static water rights values in 2009.

2009 forecast: The Northern Nevada region experienced a relatively dull absorption in 2008, with developers putting up record new construction. When the economy stabilizes, we see pent up demand for new space absorbing the available inventory quickly, then space may become somewhat in short supply with pricing following upward accordingly.

Green Rebates in the Stimulus Bill

Submitted by Matthew Miller, LEED AP

The Obama administration’s goal is to greatly amplify the implementation of green technologies and building methods in an effort to create jobs, and reduce our dependence on foreign oil and our impact on the environment.  The Stimulus Bill offers new enticing options in this area to the Industrial sector.

Here are the highlights:

» Each state will receive an average of $100 million for energy efficiency upgrades, the uses for that money to be determined by each state.

» All commercial and private buildings are eligible for a 10% grant in lieu of tax credit for the total cost of installing certain green systems.

»Renewable energy facilities can claim a 30% investment tax credit as opposed to the production tax credit payable over a 10-year period.

These are HUGE incentives in addition to the numerous State and Federal programs already in effect.  There is now a good chance that there are improvements that can be made to your industrial facilities that may have a significant impact on your bottom line.
In addition to the Stimulus Bill, President Obama has stated that “the U.S. Will enter a cap and trade system to limit Global Warming.” This market-based solution is a start towards establishing a clear, consistent, long-term policy framework to combat environmental impact, and could be right around the corner.

With the U.S. Government shoveling so much coal into the “green” freight train, it may be in our best interests to get on board.  The U.S. has set out to green the industrial and building sectors, and it will more than likely succeed to some degree.  The government will complete this monumental task with both the carrot of incentives like those in the Stimulus Bill, and the stick of various emissions trading schemes.  It may be wise to plan in advance and have a qualified guide through these coming changes when selecting your next industrial property.

Eventually, the rubber will meet the road with the green revolution, and to remain competitive, it will become increasingly necessary to be on your “green game.”

Matt Miller is a LEED Accredited Professional located in Reno, NV.

What we’re seeing in Q1, 2009

This blog has gone dormant for months now. The reason is that we tend to try to accentuate the positives and frankly, there has not been too much good news lately. Except the masterful job of aviation the pilot and crew accomplished in the ditching of his disabled aircraft into New York’s Hudson River last week. 

2009 has started off with an extreme uptick in activity for Miller Industrial Properties. We have seen numerous new prospects into the marketplace and it seems like each one of them is proceeding through with a commitment to take space. This is in deferance to 2008, where lots of lookers but few takers were the norm for ourselves and other Northern Nevada brokerages.

For these new prospects, there is a definite underlying theme however and that is the desire to remain flexible with their commitments. Some firms are wanting terms added that give them the right to terminate and buying out of the leases and others are opting for shorter term commitments. Apparently, this is not just a local trend, as this interview with a national-wide Tenant Representative firm indicated:

Excerpt of an Q and A between National Real estate Investor and Mr Bill Goade, CEO, Cresta Partners dated 1/22/09:

NREI: “What are tenants looking for today?”

Goade: “It’s flexibility. We have a lot of corporations out there right now that are uncertain about their futures and they are looking for flexibility. Unfortunately many of them are doing it the wrong way. That is, they are doing it with very short-term leases and landlords are willing now to accommodate that. When the markets are high, all landlords want to do is long-term leases. All they were interested in doing in the big markets a year ago were 10-year leases. In the bad times, landlords are all of a sudden ready to be flexible because the rents are down and they’re hoping in two years they will be back up.
What we try to advise our clients is, right now we’ve got about a one-year window that hasn’t even started yet. Commercial real estate is a lagging economic indicator about six to nine months behind the economy because companies have tough times, then they lay off people, then they restructure space, then they get rid of it. So we haven’t even seen the effects of all these layoffs. Companies are just starting to do their restacking and put space on the market.
We think the window of opportunity is mid-2009 to mid-2010 where companies should be looking to do long-term deals on their core space, with contraction and cancellation options. We’re advising our clients to take advantage of the market now. But we do see a lot of companies doing short-term deals, which are going to put them in a position where rents are rising in the next two years when the economy recovers, and then they will be negotiating a long-term deal at the wrong time.”

The key for tenants in the market today is to add an experienced tenant representation expert onto your team early n the process and allow the team to maximize your negotiating leverage in today’s market. With vacancy at an all-time high in Northern Nevada, the environment for making excellent lease purchases has never been more in the tenant’s favor. We are dealing with a number of new prospects that are recognizing this and they are receiving incredible deals with favorable terms.    

While we are certainly not predicting a turnaround in our market activity yet, all new business is welcomed. And these new tenants are certainly welcoming the lease terms and rates that are being offered.

Fall 2008 Market Update

Current Market: The short version is: The dull national economy continues to influence our local market with vacancy is at an all time high at 12.75%, leasing activity is down and new speculative construction has ground to a halt. While asking rates on new space have maintained level, firms moving into the area are finding excellent deals when developers have competed for solid, credit worthy tenants. Some submarkets have extremely high vacancy rates while others are more in balance. The I-80 east corridor, for example has a 25% vacancy, while the Stead submarket is slightly over 12%. Either of these markets provide excellent buying opportunities for big box tenants. There is decent big box market activity currently, with firms committing to space at very attractive pricing. The industrial portfolio investors are patient and we are not anticipating market pricing dipping any lower than they already are now.

Reno’s overnight/next day distribution to the 11 western states remains a strong factor for relocations with tax advantages, friendly business climate, favorable weather, high availability of trucking and reasonable workmen’s comp rates closely following. Tho the economy is a bit dull now, the continually escalating cost and burdens of doing business in California continues to funnel a steady stream of business to Nevada. Midwest and Eastern firms seeking western distribution hubs is also a strong market for Reno’s growth.   
Lease Rates: Tho market vacancy rates have climbed through Q4, 2008, asking lease rates have maintained. However effective rate son completed deals have been very competitive along with added  concessions by developers. Some sublease spaces have pricing at unheard of rates, such as $0.20/sf, NNN. Overall availability is currently excellent with new and second generation product coming on line and should be adequate across size ranges. We anticipate competition between landlords will sustain lease pricing at their current levels, with little expectation of rates lowering. However, when the vacancies start to fall again; then we anticipate price escalations, as the market finds better balance. Average Pricing: 5-15ksf: $.72, 15-40ksf: $.38, 40-60ksf: $.35, 60-100ksf: $.34, 100ksf+: $.335/sf/mo./nnn. Taxes, Insurance and maintenance charges on new space are about $.075/sf/mo. Expect rents to maintain until vacancy drops; then increase in 2009. 
Land Prices: Demand for land continues to be slow in 2008. Lenders increased scrutiny of loans and the a dull economy has slowed interest in smaller parcels. Truckee Meadows land saw over $9/sf. Larger tracts had very slow sales totals as well with the exception of TRIC on I-80 west of Reno. Pricing has maintained in this sector as well at $2.50-$4.00+/sf.. We anticipate further rising land costs due to supply and demand and increasing water rights values in 2009.  
2009 forecast: The Northern Nevada region experienced a relatively dull absorption in 2008, with developers putting up record new construction.  When the economy stabilizes, we see pent up demand for new space absorbing the available inventory quickly, then space may become somewhat in short supply with pricing following upward accordingly.