August 20, 2010

Hoff & Leigh’s Weekend Market Report
Hoff & Leigh, Inc.
Leasing, Sales, Management, Buyer Representation
4445 Northpark Drive, Suite 200
Colorado Springs, CO USA 80907
08.22.10

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All Market Average Office Building Sale Price PSF = $103.52 (UP $0.65 from last week)
We are currently tracking 92 office buildings for sale.
This is 835,185 square feet, which represents a total market value of $86,458,436.

All Market Average Industrial Building Sale Price PSF = $87.59 (DOWN $1.68 from last week)
We are currently tracking 74 industrial buildings for sale.
This is 918,696 square feet, which represents a total market value of $80,471,406.

To view our most recent Colorado Springs Business Journal Ad please click below
http://hoffleigh.com/Doc/8.20.10.pdf


Tim’s Market Report
August 22, 2010

I don’t like broccoli. I don’t like the texture, the taste or the smell. I don’t like recessions, deflation or systemic financial resets. Unfortunately, broccoli is good for you and unfortunately we have periodic resets. And as they say, “what doesn’t kill you makes you stronger” if only you’ll lean back and learn from the now and the past and craft your future avoiding obvious mistakes. And my lesson learned from these experiences. . . “Avoiding mistakes is the key to long-term success!”

In the meantime, people I’m reading say that, at least for the immediately-foreseeable future, we should expect financial gloom & doom, uncertainty and chaos. It’s their contention that the so-called V shaped recovery was a myth; that it was driven by restocking inventories then the stimulus but was never sustainable because there was no concomitant demand. They say the problem will be exacerbated now by resetting commercial estate loans which will not be “reset” but called and sold at a discount.

Previously, questionable commercial real estate loans had been hidden on bank balance sheets by design. The Treasury Department told banks to “extend the loans & pretend the market would recover”. This was also known as “delay & pray”. . . and, yes he said cynically, “that was a great strategy!” Now the Office of the Comptroller of the Currency is telling banks to take the loss; eat the broccoli; get poorly performing loans off-the-books. Unfortunately, typically, the government’s plan is screwing up the system. Their idea of “poorly performing” encompasses loans that are performing well by themselves, but where the borrower has other, non-performing loans (even with another bank). Banks are being told to look at the borrower’s aggregate situation and place all of his loans into the same “poorly-performing-bucket” if he has “any” chinks in his armor. Loans are being tarred with a singularly unfair brush. Ah, but, would we expect any less from Federal Regulators?

And speaking of loans, last week was a bitter-sweet adventure for me. I had a few partners bail-out of deals and others reaffirm their commitment. That’s called perspective & time-line. The folks who bailed-out are good guys; they just see the world through dark, gray, foreboding lenses. They believe the market’s still tanking and in that case it’s better to cut & run. The folks who recommitted may not be any more optimistic about the short run, but they’ve concluded that at some point values will recover and that it’s better to keep riding the pony they’re on rather than sell short for the loss.

What’s my prediction: We’re going to live with a new reality – instead of the hoped-for, sharp-spike of recovery, the economy will “slog along” interminably (5 – 7 years); profits will remain flat; GDP will remain flat to neutral; the national savings rate will increase because anxious spenders will not spend; we’ll experience higher-than-normal unemployment (the new normal) and the continuous deleveraging of real estate will cause continuously diminishing values in the mid-term; taxes will increase causing a further drag on the economy; the Bush tax cuts disappear and personal tax rates increase January 1st; the marriage penalty grows; the child tax credit halves and the death tax returns; and, to add insult to injury, the capital gains tax will increase from 15% to 20%!

Is there any good news? Sure; remember, 10% unemployment means 90% employment; crashing real estate values spells OPPORTUNITY. It’s a great time to reset your values, bargain hunt and ready yourself for the next cycle. Tough times are God’s way of telling us to adjust our lives - personally & professionally. Those who adjust move on and some prosper; those who don’t will get caught in the mire and bilge and flounder.

And speaking of opportunity – an update: the 6 acres we’re selling on North Carefree & the building on LaSalle Street, both, which are being Dutch Auctioned, drop their respective prices $50,000 this week. Both started at the Assessor’s value and will drop $50,000 every 2 weeks until they sell. If you want to find out more, call me (719-337-9551).

And from the Campaign

A friend (who knows I’m “at play” for an At Large Council seat) called to ask if I could help him. He wanted to be connected with someone in the police department so he could plead for patrols in his neighborhood. His business is located on South Sierra Madre Street, in an industrial area that continues to be overrun by homeless folks who normally spend most nights and much of each day in deep sleep around the Labor Ready building. I told him to “forget about it!” We don’t have the policing horse-power to patrol chronic, but mostly benign situations.

His problem points to a larger philosophical question however that merits discussion. “Do we want and do we have adequate police and fire protection?” OK, I get that we don’t want to raise taxes for the general fund because we don’t trust “the leaders” to do the “right thing”. But, who doesn’t want adequate police & fire protection?

As for the cops; the staffing is so low that you’re called to report your minor crime “on-line” and then “forget about it!” For major incidents, I’ve been told the guys can only staff-up for 1 at a time. Think of a shooting at a downtown nightclub and a simultaneous major car accident on I-25. At current staff levels, we have to pick one. Or consider how unmotivated a 20-something guy with a couple of small kids at home must be when he’s asked to report, “guns-a-blazing” to a gang-violence incident when he feels like nobody appreciates the sacrifice?

As for the fire-guys; I’ve ridden around with them and they’re awesome but they’re not really fire-guys. They’re mostly our 1st response medical team. Here’s the conundrum. We want to pay less and get more. This is bad economics and bad policy. Do you really want the 1st response for your heart attack to be from the lowest bidder?

So, here’s an idea worthy of consideration; let’s talk about increasing the PSST (that is the special sales tax that specifically helps fund the police and fire guys) and let’s take care of the guys who take care of us. Let’s play this game at a higher level and fund to obtain & retain the best of the best. And, yes, I know the arguments about pensions and pay and frankly, I wouldn’t do what they do for what we pay. In fact, I think these guys should be paid hazardous duty pay. And surely, with our strong military orientation, we should understand that. In this specific area of government, public safety, I’d like to have an “A” team and I’m willing to pay to get it.

Oh, and for the cynics out there, I was not solicited by the police or fire guys to advocate this thought. It just seems that this is a common sense approach to solving this public policy problem, which because of other “issues of the day” is not getting any forward looking thought.

I’m just saying. . .


Sincerely, TJL Tim Leigh 719-337-9551 Tim@HoffLeigh.com