Letter from the Executive Director
Mark Riedy, PhD
If you are at all like me, you fret over the trade-offs and risks involved in allocating the financial asset portion of your personal portfolio. Should I emphasize stock investments at or near record levels of the Dow-Jones and the S&P 500? Alternately, what about fixed-income securities, where the choices are bleak and bleaker, ranging from historically low rates of return on short-term but highly liquid investments to at best modestly higher returns farther out the yield curve? On a risk-adjusted basis, going farther out the yield curve poses risks of illiquidity and potential capital losses when interest rates inevitably rise, but at what point on the calendar will “inevitably” turn into “yesterday” and it’s too late—I’ve locked in the losses on my portfolio? Or will rate increases occur slowly, or in fits and starts, rather than almost instantaneously? As a prospective retiree myself, and for the millions of baby-boomers fast approaching retirement age, these are not academic questions.
If financial assets hold far less than stellar prospects regarding their returns, are real assets more attractive investments? Readers of this newsletter are biased in favor of real property assets, of course, so their quick responses might be a collective “heck yes.” And they might be right, or wrong, outcomes not unlike those experienced over a lifetime of interest rate and real estate cycles, all of which we have survived for better or worse. But what are the alternatives here? By now we have financed personal and company real estate investments as far down as they can go rate-wise, thereby enhancing our net returns through cost reductions. To varying degrees, however, today’s low-cost mortgages on housing and commercial properties inhibit their owners from doing anything with their properties, whether it is a homeowner wanting to move up into a more expensive or larger home, or in a more desirable neighborhood, or a commercial real estate investor not finding attractive opportunities to reinvest funds if they dispose of existing investments—opportunities that don’t present liquidity, credit or income risks that are difficult to assess on a realistic basis. At the same time, this economy is awash in liquidity, with too many dollars already chasing too few deals, and the excess liquidity not only pushes up real estate prices (as opposed to “values”) but tempts investors and lenders to begin to underprice risk in order to keep funds flowing out into “productive” investments, productive in the short run, at least. I’m hearing rumblings about today’s lending practices becoming reminiscent of the more relaxed-underwriting era we experienced just a few short years ago.
Where am I going with this? I am taking my PhD in business economics from The University of Michigan and going to the BMC’s Mid-Year Economic and Financial conference on July 24, and I encourage you to consider doing the same. For the bargain price of $65 where else can you go for a better opportunity to organize your thoughts about the economy and financial markets? Where better to mingle with the who’s who of residential and commercial real estate executives to compare notes and test expectations. Readers by now have learned to trust that programs put on by the BMC feature excellent speakers who are knowledgeable and able to communicate complex issues effectively, thereby promoting learning and stimulating thoughtful dialogue among attendees.
Real estate and financial markets are dynamic and complex. They can change rapidly after lulling everyone to sleep, especially in a global economy where banking crises in Iceland or Ireland can disrupt international capital markets significantly. I attended an “outlook” conference earlier in 2014, when I was told that interest rates were about ready to increase steadily and that the stock market might also suffer as a result. Those shoes have not yet dropped, though the risks remain real. So on July 24 I will be in the audience listening to Mark Fleming and Alan Gin and hopefully speaking with you to compare expectations and adjust my thinking and investment plans if need be. I’m neither proud nor confident that I have all the answers, and it’s been almost six months now since I last tuned-up my economic and financial thinking. I hope to see you next week because I will learn a lot not only from our speakers but from those of you who join me and share your reaction not only to the speakers but to the market environment in which we will be operating on July 24, which might or might not be the same as it was the day I wrote this.
Mark J. Riedy, PhD
MSRE student Lauren Burns was recently published in the International Council of Shopping Center’s (ICSC) flagship research publication, Retail Property Insights. Burns’ article, “Implications of Office-Space Downsizing,” examines the trend toward downsizing the average office-space allocation per worker and is based on an interview she conducted with Professor Norm Miller, PhD, his publications and a report from her classmates on the topic. The article also addresses office-space demand and the keys to the downsizing movement; defines the measurement tool of capacity utilization; speculates on where downsizing is most likely to occur; names the most active downsizers to date; and concludes by discussing the drivers influencing this trend.
|(From left to right) Michael Lea, Xudong An, Norm Miller, Kevin Villani and Roger Brown after the roundtable discussion at USD on June 27.
After arriving in San Diego in late 2007, Burnham-Moores Center for Real Estate Professor Norm Miller, PhD, noted some outstanding thinkers in the region, some not affiliated with any university. Miller decided to invite the local brain trust to a no-agenda, two hour breakfast meeting where these well-informed professionals could share experiences and views on the big economic questions of the moment. No issues are off-limits for the group’s discussions, but some topics have included: minimum wage, immigrant policies, mortgage default rates and loan modification programs, the affordable health care act and housing price trends. Since 2010, the roundtable convenes bi-monthly with a rotating host. There is no fee, no set agenda and the only prerequisite is a curious, highly informed mind.
The group jumps into high-level discussion and debate with the drop of a topic or two by the host. It’s a group small enough that no formalities are required. Initial members included: Roger Brown, PhD, an investor and expert in risk analysis and real estate; Marney Cox, PhD, chief economist of SANDAG; Doug Diamond, PhD, from the University of Chicago and World Bank consultant; Michael Lea, PhD, a consultant with the World Bank and affiliated with San Diego State University; Gary London, president of The London Group Realty Advisors; Kevin Villani, PhD, ex-chief economist from HUD and Fannie Mae and former CEO at Imperial Bank. Both Villani and Brown are affiliated with the Burnham-Moores Center for Real Estate as executive scholars. Soon after, Chief Economist at Point Loma Nazerene University, Lynn Reaser, PhD, and Ken Thygerson, PhD, former president and CEO of Freddie Mac, joined the group. Local real estate and economics professors from the University of San Diego and San Diego State University are also invited and attend on occasion: Xudong An, PhD, from San Diego State University, Richard Green, PhD, real estate economist and professor at the University of Southern California; Richard Peiser, PhD, professor at Harvard who resides in Laguna Beach; and Vivek Sah, PhD, assistant professor from the University of San Diego.
At the last roundtable, hosted by Miller and held on USD’s campus on June 27, there was consensus that community colleges should be able to offer four year degree programs, although Lynn Reaser, a possible dissenter, could not attend. The group also focused a great deal of their discussion this month on student loans.
“In California you used to be able to have a kid or buy a house―nowadays you can either have a kid or buy a house or pay off your student loans,” said Brown.
Another topic discussed was reverse mortgages. Here, the consensus was that anything promoted heavily on television by Fonzi, Fred Thompson and Robert Wagner must have significant fees involved. “Reverse mortgages are sold, not bought,” Thygerson said. What is not clear, however, is why more borrowers don’t use low-fee HELOCs instead. Perhaps it is the fact with reverse mortgages borrowers can’t be kicked out of their homes that reassures some borrowers. So, reverse mortgages may fit some people who have exhausted their resources and live long enough to amortize the high up-front fees.
There was less consensus on how to deal with the wave of immigrant children from South America, reflecting perhaps the broader views of the public at large. The group also acknowledged, however, that immigrants are important in some countries, such as Japan, in order to offset an aging and retiring population.
The group’s next roundtable will be held in September.
|(From left to right) A prospective MSRE student discusses the program with current part-time MSRE student Lauren Burns at the welcome reception on campus June 26.
On June 26, incoming and perspective students for the Fall 2014 cohort of USD’s Master of Science in Real Estate degree program attended a welcome reception at the Joan B. Kroc Institute for Peace & Justice on campus. During the reception, the group mingled with Center faculty and staff, recent alum Gregor Connors ’14 (MSRE) and current part-time student Lauren Burns.
The MSRE program takes 10 months to complete on a full-time basis or 22 months on a part-time basis. To be eligible, students must have a GMAT score of at least 550, an undergraduate GPA of 3.0 or higher and a minimum of two years of real estate experience. For more information on entrance requirements and scholarship opportunities, contact Ines Kraft, PhD at (619) 260-4150.
Learn more about the MSRE program.
Anyone who has studied commercial real estate knows that taller buildings are more costly to construct per square foot of usable area. At the same time, with the cost of land continuing to rise and the need for more dense development increasing, tall buildings have some inherent advantages that allow for more efficient operation.
China is a country desperately in need of curbing air pollution. The latest design from UK architecture firm Chetwoods, based in China,is going to blow the world’s tallest building, the Burj Khalifa, out of the water and lower carbon impact simultaneously. The building will stand a full kilometer tall and be called “The Phoenix Towers,” in the Chinese city of Wuhan.
The building will concurrently filter Wuhan’s air and water, collect solar, wind and hydrogen power, provide food produce from a massive vertical garden, harvest rainwater, house restaurants and businesses and boil biomass to reuse as fuel. This will be a great lab test to watch. Thanks to current MSRE student Jon Mesa for bringing this project to our attention.
Read more about The Phoenix Towers project.
In a CBS News article on May 27, 2013, contributing writer Bill Flannagan questioned, “When did everyone born after 1980 decide that ‘No problem’ was interchangeable with ‘You’re welcome’?”
We received positive feedback from Burnham-Moores Center’s Executive Director, Mark Riedy’s previous Pipeline letter regarding the de-personalization of communication in business, with personal phone calls and handwritten notes largely being replaced by emails. For generation X and millennials who think that “no problem” isn’t really a problem, think again. Its overuse is a point of contention among etiquette and grammar experts and the more inappropriate usage of the phrase is often offensive. Its use should be avoided in professional situations.
For those of you who view the shift to emails versus more personal forms of communication as “no problem,” we strongly urge you to reconsider your view. Consider these examples given to us by Riedy of “no problem” really being a problem or at least a lost opportunity to communicate effectively:
1. Recently Riedy asked one of his grandsons to lend a helping hand moving a piece of furniture, for which he said “thank you” and to which his grandson responded “no problem.”
2. In a restaurant a server brought the food order with an entrée his guest had not ordered, to which, when pointed out, the server responded, “no problem.”
3. A luncheon guest, who was running 35 minutes late, apologized, for which Riedy could have said, “no problem” but didn’t.
4. Riedy’s personal favorite is to read drafts of memos and letters from a variety of authors, who apparently value his proofreading skills, given the typos they included in their draft. Upon being energized to correct the typos and resubmitting the paper, in some (not all) cases another “no problem” catches his attention.
Lynn Gaertner-Johnston, founder of Syntax Training and Business Writing, advocates that the “problem with "not a problem" (or ‘no problem’) is its negative parts: not and problem. When it comes to tone, two negatives do not multiply to create a positive. “Not a problem” has, at best, a neutral feeling.”
Our problem with “no problem” is its “one size fits all” answer to situations better served by more thoughtful and more candid responses. Taking each example above, responses more thoughtful than “no problem” might have been along these lines:
1. It was my pleasure, or at least “You’re welcome.”
2. My mistake and I apologize. I’ll get the right order out quickly.
3. I’ve run late too, but it’s always an imposition on those waiting. Like you did, at least I try to let them know I’m running late, and I appreciate your call with the head’s up.
4. I liked the analysis you wrote, but prefer that you proofread the draft more thoroughly or have someone else proof it for you. It’s a waste of my time and yours to correct typos. Next time prepare the second draft and then read it again before sending it out for proofreading.
Gaertner-Johnston suggests replacing the negative use of the “no problem” phrase with words that create a more positive tone between the writer and reader or speaker and listener, including:
1. You are welcome or you are most welcome.
2. My pleasure, it’s our pleasure or it’s a pleasure to help.
3. We are happy to serve you.
4. We aim to please.
5. I am glad you like it.
6. Certainly, or sure thing!
8. Thank you!
Hopefully this career tip will encourage our readers to quit using “no problem” as a catchall phrase. Eliminating this ubiquitous phrase will enhance effective communication and make us stop and think of what a better response would be―even if it needs to be sugarcoated. And if it can’t be sugarcoated spontaneously? No problem!
Additional readings on “no problem” etiquette:
|Trevor Hubbard ’05 (MSRE)
Trevor C. Hubbard, MAI, SRA ’05 (MSRE) has been actively engaged in commercial real estate valuation and consulting services for nearly a decade. Prior to joining Jones, Roach & Caringella, Inc., Hubbard completed the Master of Science in Real Estate program at USD. He has performed appraisals involved in eminent domain actions, title defect cases, easement acquisitions/dispositions, diminution in value matters, hazardous contamination litigation and ground leases. Hubbard has successfully passed both the Litigation and Valuation of the Components of a Business Enterprise Professional Development Program examinations from the Appraisal Institute (AI). He holds both the MAI and SRA designations from AI and is a certified general real estate appraiser in the state of California. Hubbard is actively involved with AI on a local, regional and national basis. Currently, he serves as an officer at the San Diego Chapter, a member of the California State Government Relations Subcommittee and a member of the national Diversity Committee. Additionally, Hubbard is actively involved in AI’s Leadership Development and Advisory Council and serves as an advisor to multiple candidates for designation. His most recent accomplishment was shepherding the successful passage of AB-1888, which enhanced the integrity of California’s Public Records Act by eliminating the non-disclosure option in the recordation of document transfer taxes.
If you are a USD alum working in the real estate industry, we would like to hear from you. Please e-mail Diane Ice with recent and significant career-related achievements and initiatives. All submissions will be considered for publication.
Burnham-Moores Center’s Executive Director, Mark Riedy, PhD, was the guest speaker at the Association of Corporate Counsels meeting in San Diego on June 20th. Riedy’s topics focused on financial markets and the slow-motion U.S. economic recovery. He shared concerns about risk being underpriced in some commercial real estate markets and the prospects for San Diego’s real estate markets, jobs and incomes.