“WE WERE WRONG. THE MARKETS CAN CRASH.”
Dan Mihalovich
January 15, 2016
Words you’ll never hear from Wall Street. Or from commercial real estate brokerage firms. As we stare out to 2016 and the very rocky start it was, “Peak Oil” comes to mind while contemplating our crystal ball. It was Goldman Sachs who years ago cited “Peak Oil” as the market phenomenon which brought us $100/barrel oil. Their pronouncement was that the world would never again know greater supplies of oil than were then available – relative to an ever-growing global consumer base. And so, it was goodbye to “cheap” $100/barrel oil….forever. Yet here we are, ladies and gentlemen, at $30/barrel oil. Never say “never”, when it comes to market forces.
Could the Bay Area’s office markets collapse under its own weight of over-amped, hyper-valuated, VC-backed tech companies? Some analysts suggest that we put every Series A company on a “watch list”. While our national economy has chugged along well enough – with all due respect, fabricated in large part by printing billions of dollars every month for what seems like a generation – there are seriously troubling signs everywhere else we look, let alone China whose empirical accounting is an oxy-moron. We shall see.
Here in Camelot, office leasing brokers and our clients barely have time to think, contemplate, talk or make proper decisions. A lot of mistakes are born out of this environment. We see trainwrecks of deals every day, especially when tenants align themselves with heavily conflicted landlord-brokers and/or those who are simply not organized and experienced to lead a complex process and implement a well-thought out strategy. Most notably, brokers leaving out critically important Team members like architects, contractors and real estate lawyers….should probably be retired from the trade.
“Affordability” around here, something tenants last saw in 2007, is for the rich, for the moment. But the trends are clearly changing and we believe it is now common perception throughout the landlord and brokerage community, that the height of the office market is behind us and more sensible and balanced scenarios lie ahead.
How quickly can the office markets change? Obviously it depends on whom you ask. Nearly overnight, we suppose. The price of oil fell flat out. And you didn’t see that coming. For those of you who’ve seen “The Big Short”, you’re reminded that the trillions of dollars of opaque trading that led to that crash – remains opaque to this day. Goldman Sachs, which only now was forced to pay a $5 BILLION fine for its transgressions during ’05-’07, became a bank (as did others) to shield themselves from disaster. Is our economy any more secure today than it was back then?
We’re used to “the herd” mentality in CRE, of course. Hats off (once again) to Sam Zell – for his market-timing turning over an entire portfolio recently. To be nimble and prepared especially during times of trouble, that would be optimal. Who in the marketplace is best suited to do so? That’s easy: Tenants.
Mihalovich Partners exists to advocate for and represent tenants, only. We understand, appreciate and navigate through challenging markets. And, we’re using the smartest new technology to help us manage our client-Teams and the transaction process – our industry’s first online transaction platform called griddig. Call us to get together. And check out www.griddig.com.
Think about our representing your interests in your next office leasing negotiation. Thanks.
Cheers,
MIHALOVICH PARTNERS
655 Montgomery Street, Suite 1490
San Francisco, CA 94111
T: 415-434-2820
C: 415-999-9244
T: @MihalovichCRE
E: [email protected]
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About the Author
Mihalovich Partners, a San Francisco based commercial tenant-representation firm, was formed in 1998 by Dan Mihalovich, then a 16-year Industry veteran and Director of Office Leasing at Cushman & Wakefield. Mihalovich brings to the firm 35 years of business experience, focusing on Market Analysis, Negotiation Skills and Project Management expertise. He has managed over 200 office-leasing and project management assignments for many of San Francisco's most prestigious tenants. His career, and the focus of Mihalovich Partners, is solely driven to advocate the interests of San Francisco tenants in leasing negotiations of all types—renewals, relocations, renegotiations, and terminations. Mihalovich Partners never represents landlords, avoiding conflicts of interest, unlike most firms in the leasing brokerage business.
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