Off Market Opportunities (OMO)

Mark your calendar and remember these predictions for 2017.

Los Angeles industrial real estate will reach and top $400 per square foot. The confluence of cheap loans, massive demand, alternative uses, low vacancy and foreign money creates the perfect storm for an increase in values.  Many off market opportunities exist and there are many well located warehouses in the Los Angeles market.

I'm not a big stock market guy. I have some friends that watch it close and I get a tip now and then. I'm buying North Star Realty Finance Corp. (NRF), a real estate R.E.I.T. that will merge this month with Colony Capital, Inc., at $15 per share. Another R.E.I.T. I also bought was Max Sound Corp (MAXD) O.T.C. at $0.01 per share. This is a total penny stock that has patent technology with a lawsuit against Google (and a total gamble by me).

Disclaimer: This blog is presented to the public. The blog and all information provided is for entertainment only, and are not specific recommendations for any person, entity to purchase, or invest without consulting their own experts and performing their own independent due diligence. Major Properties, Bradley A. Luster and affiliates assume no liability for any gains or losses of the purchase or sell and for any recommendations made by this blog. 

Foreign Currency Comes to Los Angeles

Major Properties is a boutique brokerage firm with 15 agents. In spite of being small, we not only get our fair share of deals, but we also have a pulse on the Southern California real estate market. I'm sure that gives us an edge over our competition. 

Major Properties has approximately $200 million in deals currently in escrow. The market is showing no sign of weakness or slowing, and more money than ever is flowing into Los Angeles real estate. This first quarter of 2017 looks amazing with no end in the foreseeable future.

I represented the sale of a property on Pico Blvd near Fairfax Ave. The property has a small athletic gym in one space and an 8,000 square foot film studio in the other section. I was in and out of escrow twice over an 18 month period for around $12 million. The prospective buyers could not make the deal work for their use.

In December we got a call from Bangkok, Thailand. A buyer was interested in purchasing the site. The conversation went like this:

Buyer: "Brad, how much for this property?"

Brad: "$12 million."

Buyer: "How much for all cash, no contingency, 10 day close?"

Brad: "Try $10 million."

The deal was signed, the money wired and it closed one week later! Wow!

In regard to Los Angeles, we are only at the beginning of this economic bonanza. With the urbanization of Downtown, the Rams returning, the Olympics possibly returning, cannabis dispensaries and cultivation, population growth, diversity of traditional buildings, etc., we are in an amazing stage of growth. Stay tuned!

Kung Fu Real Estate

I really like watching Kung Fu shows, as they are the ultimate good vs. evil type programs. The show Kung Fu starring David Carradine was a staple in my house growing up. The various life lessons that the monks taught "Young Grasshopper" were inspirational.

My business practice follows similar principles of Kung Fu and other various teachings that promote discipline and consistency.

I annually plan reasonable and achievable goals and outline a plan for success. I try to avoid the distractions of the media, temporary market fluctuations, and the shenanigans and personal discretions of some people you deal with.

In 1998 I found myself getting a divorce and living in a 2-bedroom apartment on Bentley and Santa Monica Blvd. Two months after I moved into the apartment the property sold. The new owner planned to white paper the building into condos. I was offered my unit for $200,000 and I accepted the offer. Two years later the owner finalized his plan and was able to deliver the property. So, in 2000 I bought my condo for $200,000 and 30 days later I sold it for $325,000.

I then bought a 3-bedroom house in West Los Angeles on Tilden Ave for $400,000. I also married my wife Theresa. Two years later, we sold Tilden for $975,000 and bought a 5-bedroom/4-bath home in Mar Vista for $1,375,000. 

To sum up, in 1998 with $20,000 cash I bought my first condo and 4 years later, with no fresh cash and only the $20,000 initial investment, I had a $1,375,000 home. Today, that same home is worth $3,000,000. Real estate is amazing! 

At the same time, Major Properties has been buying and selling properties for our clients and ourselves. Values have risen to never seen before prices over the past few years and foreign investment is at an all time high as well. It is estimated that Major Properties has done over $4 Billion in transactions over the 53 years we have been in business in Los Angeles. We are happy to provide a complimentary opinion of value and marketing analysis for all commercial, industrial and residential property owners.

New California 1031 Exchange Law Effective January 1, 2014

Effective January 1, 2014, all taxpayers – resident or non-resident – who sell California property in a 1031 exchange and purchase replacement property located outside of California will be required to report this annually to the California Franchise Tax Board.

In June of this year, the Legislature passed Assembly Bill 92 (AB 92) which added California Revenue and Taxation Code Sections 18032 and 24953 creating the new annual filing requirement.

With this new law, the Franchise Tax Board (FTB) will be able to track California sourced gain from 1031 exchanges.

Generally, taxes deferred in a 1031 exchange are due at a future date when the newly acquired replacement property is sold. However, if the replacement property is located out of state, there is no tracking mechanism and the State of California loses that tax revenue.

Essentially, the new “1031 Information Return” must be filed annually until the deferred gain is recognized – i.e. the property is sold without another 1031 exchange.

For taxpayers who are already required to file a California tax return, the new “1031 Information Return” will be filed as an attachment to the taxpayer’s California tax return.

For taxpayers who are not already required to file a California return, the new “1031 information Return” will be due on the same date that a California return would be due if they were required to file a California return.

The new filing requirement applies to all individuals, limited and general partnerships, estates, trusts, limited liability companies, limited liability partnerships, and all franchise or income tax paying corporations regardless of their residency status or commercial domicile.

The Franchise Tax Board will be establishing guidelines, procedures, and standards for implementing the new law.

The new California 1031 information return is currently being developed by the Franchise Tax Board. For more information on the new filing requirement please visit https://www.ftb.ca.gov/professionals/taxnews/2013/November/November_2013.pdf

For more information on 1031 exchanges, please visit www.orexco1031.com or call 1-800-738-1031.

Note: Check with your tax advisor: Major Properties is not qualified to provide tax and legal advice. This information is provided only as a courtesy to readers for information purposes only.

Is Los Angeles Important?

Watching the drama unfold this past week helped me to confirm my suspicion that Los Angeles or “LA” is important to the world. The public ceremony celebrating the life of Dr. Jerry Buss made me think of our fair city and what it means to so many. Dignitaries and business people came from all over the world to pay tribute to this amazing man. Some might call him simple, but there was nothing simple about Jerry Buss. But when you live right, and treat everyone with respect, it can seem that you are simple.

I had a good friend named Dr. Stan Walch. He was a buddy with Dr. Buss back in their school days. He tells a story of Dr. Buss as the smartest man he ever knew: “We played monopoly for real money and Dr. Buss always won! We played without tokens and without the titles. We played from memory and Dr. Buss had the best memory." I am sure Dr. Walch and Dr. Buss are playing Monopoly together again.

Then I watched the Oscar’s telecast and thought it was one of the best I've seen in my life. I liked the Captain Kirk bit a lot. During each break they played music from classic movies, conjuring up memories of the past with the music references. I loved Barbara Streisand. My only complaint was for the Jaws theme which played when speakers went overtime. Most of the show was classy. Congratulations to Argo for Best Picture and all of the other winners.

We are a city under siege. Money is pouring in from many different states and countries. Buyers from all over the world have descended on Los Angeles to purchase real estate. This starts in housing and gradually moves on to investment and commercial development properties.

If you look outside, the weather tells a great story. If you need more reasons, let’s discuss the notoriety of being in Los Angeles. We are Hollywood, the capitol of people’s dreams. Every young person growing up wants to live a life of Entourage, fast, fun, sexy etc. And they believe it can be found here in Los Angeles. They are not so wrong, but it comes at a price.

You need money to live in Los Angeles, the playground of the universe. Now New York, Amsterdam, Rio and other amazing places will argue that they are the center of the cultural universe of fun and excitement. They are right and so are we. We are the creators of Reality TV; a Pink’s chili dog can be on equal footing to a night at Spago; and living in Silverlake can be more prestigious than living in Beverly Hills. The artist sub-culture in Los Angeles is the envy of the world. The free LA Weekly newspaper is more popular than the Los Angeles Times.

How exciting to own real estate in Los Angeles. Growth and development is at an all time high. Demand for new shops and creative space is booming. There is a shortage of quality distribution space. So what does all of this mean? Where are the opportunities? Is it time to sell or buy?

If you read my previous posts, you know I always say that you should never sell real estate in Los Angeles. But for some, they need to sell. There is death, divorce, retirement, relocation and the inability to manage the property correctly. These factors create opportunities for someone else to buy in. If there is an offer that is too good to be true, and you can move the money into an exchange, then selling makes sense.

So I say: be a buyer. I would look into any single-story properties on major streets and thoroughfares. Check out the San Fernando Valley for all types of properties. I would be looking into distressed real estate in South Los Angeles as the demographics are changing and the need for basic services is growing too.

Current low interest rates allow everyone to participate in this real estate boom. The time is now for people to pool resources and get in the game. The inflation that will surely follow tomorrow will more than make up for what you pay today.

We just had a primary nominating election for mayor and many other offices. The two top mayoral candidates, Eric Garcetti and Wendy Greuel, will have a run-off election on May 21st. What I find sad is that only 16% of eligible voters actually voted, one of the lowest turnouts in memory. The apathy the population has for government tells a story of future distress. The city’s government is in an economic crisis and the city may be in a citizen crisis as well. Most citizens are living paycheck to paycheck or are on some form of government assistance. Of course, there are the wealthy that are in good shape, but they have to survive within a system of government too. The population is becoming more divided. This is not good and is outright scary.

Maybe that’s a real reason to sell?

I don't mind paying more taxes if it goes to support general services and helps people to get back on their feet. We are all in this together and need to sacrifice to make our home a better place. Real problems in our city, state and country will need real leadership and solutions if we are to thrive. We are a diverse city with a need to come together in many different ways to move forward and grow.

Meanwhile, I am still a buyer in this market.

The Year to Get Rich

The “Fiscal Cliff”, “Y2K”, the “Mayan End of the World” and “Black Monday”: all of these events and more have come and gone without an economic calamity unfolding. Fear is the greatest factor in markets and cycles.

Some of the fear factors have effects on the economy, but in the end the markets adjust and move forward. I am totally convinced that 2013 will be a dynamic year for real estate, stocks and other investment opportunities.

My predictions are as follows:

Real estate in the Los Angeles market will continue to be a safe and wise investment. Last I checked, they were not building any more land and Los Angeles is booming! Apartments, office buildings, retail stores and shopping centers and industrial properties are in high demand. There is a huge need for more and more space.

This is not a spec bubble, but real growth and requirements by end users. The biggest users are the apartment dwellers. Currently, there is a shortage of units in Los Angeles. The hipsters are looking for space in Downtown L.A. and surrounding areas.

I think that there are hidden deals and one place I recommend is the San Fernando Valley. WOW! Who would have ever thought that I, a Downtown expert, would be touting the valley. When I was single, I would not date a valley girl as it was geographically undesirable (sorry girls). Today, the valley is one development away from a similar boom as Downtown. Ventura Boulevard is an amazing street that has an unending collection of fascinating businesses that will demand growth. There is a great need for shopping and various attractions that will make the area a second Downtown (development-wise). It just needs a smart developer to bring the vision. Like AEG brought Staples Center (and the Lakers and Kings) to Downtown. Like Rick Caruso built the Americana in Glendale.

Part of the success of any vision is a cooperative business-friendly government. We have a big election coming in March and Jan Perry is a proven commodity for Mayor. She provided the foundation for the city support for the entire AEG empire development, and will champion the same type of growth for the San Fernando Valley.

 

I think President Obama should meet Jan Perry and discuss how she guided Downtown Los Angeles back into amazing prosperity. It's a blueprint for cities across America!

 

The stock market will have its annual correction, as that is how it works. But I think we will see a 15,000 or better Dow Jones industrial average in 2013. I am not an avid investor in stocks (I just own some Apple and a little real estate investment trust called Two Harbors). I also have a small amount of gold and silver. I see $2,000/oz. gold and $40+/oz. silver, but as always, check with your professional advisors and don’t rely on my opinion.

In regard to real estate, I recommend that you buy, buy and buy, as Los Angeles will continue to boom. We had a banner year in brokerage last year and 2013 is looking to be as good. We saw warehouse prices go back up to $100-$150 per sq.ft., and mass investment/speculation on land for development of apartments.

The driving force is demand and that is supported by cheap money. The opportunity to own something with a cheap loan is amazing. I suggest you buy something in the area and hold. It will multiply over time for sure. Don't over leverage yourself. You should have six months in reserve, just in case your tenants can’t pay the rent. And don’t forget to set aside money to pay the real estate taxes, as they can sneak up on you. Now is also a time to look at your portfolio and investigate refinancing. Rates are very low and you can save money and make money by lowering your interest rates.

May 2013 be a prosperous year for you!

Jan Perry Gets It!

When one decides to run for Mayor in Los Angeles, they are basically asking to live life in the proverbial "fishbowl". It is a daunting task to run a city with a hundred different nationalities and multiple groups or associations pulling on your shirttails promoting their special interests. Then, you have to balance the desires of those groups and the demands of big business with regular citizen’s basic needs for food, shelter and quality of life. There’s also dealing with the tendency of government to expand and tax, labor and union disputes, and the private sector’s desire to build and grow their companies in the most dynamic city in the world.

So how did Jan Perry, as Councilwoman for the 9th District, manage to successfully work with non-profits and the homeless, government, private business and union labor, making Downtown Los Angeles the envy of the world?

By leadership! Back in 2009, when she was acting Mayor, Councilwoman Perry knew that when Michael Jackson passed away, she had to act. Rallying the business and entertainment community, a selfless decision to stage a public tribute at Staples Center at the City’s expense was made. Hundreds of millions of fans around world shared the mourning of a legend, and Los Angeles did the fallen icon proud.

Jan Perry gets it!

We live in a world economy and the world is watching. Leadership is needed and decisions have to be made in good times and bad.  If you think about Los Angeles, we had our Rodney King riots, we had O.J., and we continue to make headlines with celebrity arrests as well as more horrible murders and tragedies. We all live in a giant fishbowl and whoever leads us for the next term or terms as Mayor needs to be ready to handle the potential issues that can inflame a community quickly, and not add fuel to the fire.

The next Mayor needs to have the sensitivity to make intelligent choices, and to celebrate with the world when the Clippers, Lakers or Kings win a championship. The next Mayor needs to be able to support the business passions of AEG as well as firms that want to call Los Angeles home, which helps to bring billions of development dollars and future tax revenue to the City. The next Mayor needs to nurture the growth and prosperity of the entire City, from the Pacific Ocean to the San Fernando Valley, from East LA to the Ports of Los Angeles.

Jan Perry has a track record of these accomplishments. She also has the drive and passion to bring this type of leadership so all of Los Angeles, so all can prosper, as well as feel safe in any neighborhood.

Our city is the envy of the world. Billions watch us on TV with the hope of one day living the American Dream. People come to Los Angeles with dreams of a better life, meeting stars and starting fresh. It takes real leadership to balance all of the differences that make Los Angeles so unique, and to responsibly lead us into the next phase of growth. 

If you are a resident of the City of Los Angeles and a registered voter, you have a choice to make this coming March 5th. Here are three things you can do to help Jan Perry be the next Mayor:

1. Vote                             

2. Send this message to your friends

3. Send a contribution www.janperry.com 

Inside City Hall with Councilwoman Jan Perry: Part 2 of 2

Here is the second part of my interview with Los Angeles Mayoral candidate Jan Perry.

Q: Institutions like the University of Southern California (USC) and Los Angeles Trade Tech have been an important part of the educational landscaped Downtown. How do our educational institutions fit into the development of our urban core today and in the future?

A: We have many fine institutions that I have worked closely with to ensure positive growth. The Fashion Institute of Design and Merchandising recently finalized their expansion plans that includes a new sign district. They are an integral part of the community as they are uniquely situated adjacent to the Downtown Fashion District, which is the second largest industry in our city behind filming and entertainment. I believe that the continued growth of their campus will support the growth of the fashion industry in the City of Los Angeles.

Educational institutions like Los Angeles Trade Technical College have played a major role in the positive development of Downtown and the surrounding communities. They are training the workers of the future and are well-positioned to train hospitality, construction and culinary workers for the jobs that are being created today and in the future.

USC is currently going through the development of a specific plan and development agreement with the City that will upgrade their campus and re-imagine University Village into a retail center for the region. I established a negotiating team to ensure that this development moves forward while respecting the needs of the surrounding community. I believe that, through this process, we have been able to strike a good balance that allows us to move forward with confidence.

Q: Downtown has long been a diverse place, for people living at all levels of the economic spectrum. In this respect, the development landscape must mirror this. Can you tell me about how you balanced the needs of both the people now living in Downtown LA and for future residents?

A: I have a planning background. From the beginning, I worked to create a jobs/housing balance in my council district. I used and developed many planning tools for increased density and for the Downtown street standards to encourage developers and make it easier for them to navigate the City’s entitlement process. And I worked to preserve affordable housing.  I am a proud supporter of the Affordable and Supportive Housing Trust Fund that enabled me to work with both the for and non-profit affordable housing developers to leverage hundreds of millions of dollars into permanent affordable housing for seniors, working families and the homeless. These projects have a 55 year covenant for affordability.

Most recently, we cut the ribbon opening the YWCA Urban Job Corp Center in South Park. This center offers job training, housing and services for emancipated foster youth and at-risk young people. The program provides job training and placement in the surrounding community. This includes the jobs created by projects like Wilshire Grand and Farmers Field. I am proud of the role that I played in this project, working with the YWCA to acquire initial funding from the CRA and to leverage resources to finance the project that houses 400 transitional age youth. The Downtown Women’s Center is the only homeless service provider in Skid Row for women. The new center was made possible because I worked to convert an ageing shoe factory into a beautiful, award winning, adaptive reuse service enriched supportive housing and service project.  I believe that projects like these enhance the area for more real estate investment while working to meet the needs of the community.

Q: For any residential community to be successful, you need the right balance of housing, jobs  and amenities. What is the retail and amenities mix of Downtown and what is the future for this sector?

A: Retail is an important component of every community. The adaptive reuse ordinance helped jump-start the residential component of Downtown, and along with development came many niche businesses occupying the ground level floors of these buildings. These small businesses continue to grow. You can see the evidence on Main and 7^th Street where restaurants, beauty stores, dry cleaners and specialty stores have filled once empty store fronts.  The entrance of big name retailers like Ralphs, and more recently Target, have demonstrated the strong buying power that now exists Downtown. I worked closely with both and know that this is just the beginning for the Downtown community. The future will bring a brand new Fig at 7^th mall with attractive store fronts, a unique and appealing food court and farmers market. I am also confident that the final phase of the Grand Avenue project will bring more big name retail development to Downtown. With the mix of small niche businesses and key large-scale retail operations, Downtown will continue to grow, creating the need for more retail leases.

Q: You are running for Mayor of Los Angeles. What lessons have you learned about real estate and development during your time as a Councilmember that you believe will translate to your platform citywide?

A: The biggest lesson I have learned is that the best way to get things done is to be honest and straight forward when it comes to development. I have lived by the philosophy that you need to tell people what to expect and follow through in a manner that supports their interests and goals. I directed my staff to meet weekly with developers. It has provided them with the opportunity to present their plans and receive feedback and provide assistance before the start of their project. This process gave greater confidence in the entitlement process. Major projects were addressed with multiple city agencies meeting with developers simultaneously to sort out challenges. Developers knew what to expect in advance. All too often, I hear that the city is confusing and difficult to navigate. I have a reputation for streamlining the development process and getting projects done. I would bring this same level of skill to the mayor’s office. I worked to meet community needs and serve the interests of all of the people I represent. I believe that a great deal can be done to restore and stimulate development in every community in Los Angeles in a manner that meets the needs, growth interests and is done to a scale that honors and serves the community interests. 

I have a record of being proactive and of seeing projects to completion. You can expect nothing less from me as your next mayor.

Inside City Hall with Councilwoman Jan Perry: Part 1 of 2

I had a nice sit down with Councilwoman Jan Perry, who is currently running for Mayor of Los Angeles. We discussed many issues about Downtown, and if she can win the Mayoral election, Los Angeles is in for a great future!

Q: Under your tenure on the City Council we have seen Downtown Los Angeles flourish and develop into a city center with 40,000 residents. In fact, over the past decade alone, the Downtown Center Business Improvement District (DCBID) has reported that Downtown has seen over $9 billion in private investment, 90,000 new jobs, and $40 million in new tax revenue for the city.

What do you believe was the catalyst for this tremendous growth?

A: The faith of our business, development community and private sector, along with the support of government agencies like the Community Redevelopment Agency, helped spur the renaissance that we have enjoyed in Downtown Los Angeles. The catalytic development of the Staples Center in the 1990’s replaced parking lots and paved the way for LA Live and now the new Farmers Field stadium and Convention Center expansion.

The city adopted the Adaptive Reuse Ordinance allowing for the conversion of underutilized industrial and office buildings into mixed use housing and retail development. We have fostered public/private partnerships that have resulted in tremendous projects that include housing for people living at all income levels. This development activity continues to act as a catalyst for more investment and growth that extends beyond Downtown Los Angeles and into neighboring communities.

Downtown Los Angeles offers higher density development for people that want to live in the urban core. New housing has led to greater investment and brought new restaurants and neighborhood retail like full service stores and a new Target for Downtown workers and residents. Downtown Los Angeles is a major employment center. I worked hard to provide as many opportunities for people to live close to their work place and establish a jobs/housing balance. 

I am proud of the role I played in the development of LA Live and the Convention Center Hotels which helped establish the Sports and Entertainment District to attract larger conventions. This project demonstrated the potential of downtown and with the addition of a new football stadium and expanded exhibition space it is estimated that we will need five more hotels to accommodate a far greater level of activity. Downtown has transformed into a 24 hour city and a place where people come to work, live and be entertained.

The past decade has brought a renewed faith in the capacity of Downtown as the economic engine for the region. I believe my vision for Downtown as a center for our tourism, entertainment, cultural events, civic engagement, job creation and residential living has been realized through my effort to ensure that development and development partners were given realistic guidelines and expectations in which to navigate the city. I have been a person of action and someone with a record of getting things done. I believe that what we have been able to accomplish Downtown is remarkable.

Q: You have long been a champion of creating a true cultural corridor to highlight the wealth of cultural opportunities in Downtown. In fact, you served for eight years on the Grand Avenue Joint Powers Authority as Vice Chair. While this project has changed since it was first envisioned, what can you tell us about its future?

A: The Grand Avenue Project began under Mayor Hahn and continues today, despite the many hurdles that we have faced along the way. From the downturn in the economy to the dissolution of the CRA, this project has had its ups and downs. Through it all, however, I remained confident that we would bring quality development to our cultural corridor. I am proud of what we have been able to accomplish. The results speak for themselves: a new 12-acre civic park, the development of the Broad Museum, and a future mixed-income housing tower with space for restaurant and retail operations, and a central plaza that will serve as a gateway to the Downtown Regional Connector. The Regional Connector will connect light rail and subway services from Long Beach, Hollywood, the San Fernando and San Gabriel Valleys, the West Side and South Los Angeles and make coming to Downtown far easier by way of public transit. The ongoing development of our public transportation infrastructure is a key component to the future of our region. We will not get people out of their cars unless we offer them a variety of affordable living situations close to where they work.

Q: Hotel development Downtown has been an important issue. You have been at the forefront of many of these large-scale developments, highlighting the need for more hotel rooms for conventions and tourism. Can you tell me about some of these projects?

A: For many years, our Convention Center and LA Inc. (our Convention and Visitor’s Bureau), have told the City that we need more hotel rooms in order to truly compete for large conventions. We responded with the development of the JW Marriot, adjacent to the Convention Center. I worked closely with the developer and the city staff to structure a financial incentive package to help the development pencil out. The hotel created new jobs for the region, met our need for a convention center hotel, and contributes new tax revenue for city services like fire and police.

This, however, was just the beginning. I chaired the City’s Ad Hoc Stadium and Convention Center Modernization Committee and, after over a year of negotiations and public input, we were able to draft a development agreement with AEG to build an Events Center /NFL Stadium and modernize the West Hall of our current Convention Center. With this new space, we will move from 15^th to 5^th in convention exhibition space. This is good news for the entire region as large conventions utilize hotel space throughout the region.  

I am excited that I was able to work with the Wilshire Grand Hotel on their redevelopment efforts, supporting upgrades that will accommodate more room nights and visitors within walking distance of the Convention Center. I also worked closely with Marriott to help structure a similar deal with them on the development of two new hotels on Olympic Blvd across from LA Live. Both will be major boon for the Downtown area, creating thousands of construction and permanent jobs and support tourism in the region.

The Recovery Continues

It has been awhile since I last wrote. I just returned from Europe and in the tourist areas of Greece, Turkey, Israel and Italy there were very little signs of a recession or slow down.

Restaurants were busy, hotels were jammed, museums had lines and things seemed very good. I ran into a friend from Los Angeles in Jerusalem and had dinner with local philanthropists Stanley and Joyce Black in Venice, Italy.

Earlier in the year, a lawyer friend and associate contacted me about listing a property in the San Fernando Valley. The property is Center BMW headquarters (for over 25 years), who are the tenants. Prior to my trip, I met with the owner, who inherited the property from his step-mother. We decided to sell the property to Center BMW, who were more than ready to be the owner of their new 30,000 sq.ft. showroom and 169,000 sq.ft. dealership. The deal was made without having to be placed on the open market! Both Buyer and Seller were happy and the transaction closed upon my return from Europe.

David Farguson, the president and new owner of Center BMW, is a really nice guy, and I suggest that you meet him personally if you want to buy or lease a new car. I know that I will get my next car from him. You can reach him at 818-907-9995. Center BMW has developed a loyal following from celebrities and “regular” people alike.

When I returned from my trip, I noticed the Downtown Los Angeles and Hollywood real estate markets were exploding. We are currently in the middle of so many deals and the future is looking very good. Again, owner/user type deals are just going crazy with easy money i.e. SBA financing at 4% interest (20-25 years amortized).

Our residential business in and around L.A is doing very well too. There are a shortage of condo's in Downtown Los Angeles and we are making many land deals for development. Laura Silver, from our office, was recently voted the best Residential Broker in Downtown by the Los Angeles Downtown News.

Another good sign about our Los Angeles economy is that the lower end housing is doing well. I met with Lori Gay of Los Angeles Neighborhood Housing and she told me that they have multiple closings daily, and multiple offers for all types of housing. NHS provides housing services to over 10,000 new home owners annually. She and NHS are amazing.

The lag in the economy is in retail rental properties. This is due to competition, people buying over the internet, and overall conservative spending on the consumer level. The biggest risk to the continued growth and prosperity continues to be government debt. This needs to be addressed on all levels: city, state and federal.

It’s good to be back and with you again.

Real Estate Recession is Over

"It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness;...”
A Tale of Two Cities by Charles Dickens

When cycles change, they usually don't announce that they are here. Usually they advance onto the market in a slow gradual pace. What’s amazing about this cycle is that it’s screaming out that the real estate recession is over. I am here to tell you that we have hit bottom and now is the time to start buying.

The house on the corner where I live in Mar Vista went on the market for $795,000 (a modest 1,300 sq. ft. home). They had the first open house Sunday and had over 100 people visit.

I had a conversation with Robert Minskey of Commerce Escrow in Downtown Los Angeles, an company we use a lot. Rob told me they are hiring and are very, very busy. Deals of all types are getting done. Vacancy rates are way down and all types of real estate are getting offers from multiple buyers.

A few weeks ago, I had a meeting with Kara Savoian Chase Bank, and they are becoming very aggressive for deals. Last week I had a meeting with Joe Pacis of City National Bank and about 15 of their loan officers. They were all very hungry for deals. Today I had lunch with Gus Ghusayni and Sania Kazimi from Wells Fargo Bank. They said the bank is sitting on $150 billion nationally and they want deals.

I got a call today from mortgage broker Barry Weinstock, whom I’ve known for many years. He was so excited about insurance companies that have so much money to lend. He has arranged literally billions of dollars worth of loans in his career. My clients are making offers on properties that sat for months and some for years. The tide is turning and now is the time to buy.

The good news is that you can still find good deals. I just put a deal into escrow on a 26,000 sq.ft. vacant warehouse for $1,220,000 ($47 per sq. ft.). Once the real estate market chooses a direction, it goes that way. Since October 2008, it has been on the way down, and now in March 2012 it’s on the way up! The pace of buying, if it continues, will start to drive prices up. But I feel for the most part we have hit bottom and have stabilized.

Appraisers are starting to look at deals and putting in appreciation for future value. This is one of the most amazing phenomena that drives real estate up. If the properties don't appraise, then the deal does not get funded. When appraisers start to look at the market with optimistic eyes, that’s when things start to rise.

Low Interest rates are also a leading contributor to this new cycle. This is a man-made cycle and the force of QE1, QE2 and QE3 have for now, saved our markets. Now is the time to identify quality real estate and get in before the big increase in prices. The price per square foot and cap rates will take off in all real estate like the apartment markets have maintained. Be warned, location and property type, tenant mix and manageable debt are the new rules of the day (as they should be always). This cycle will be orderly and specific to quality and well balanced debt. Those that don't heed this warning will fall and lose money even in this up cycle. And the biggest danger to this cycle and your success is technology.

The internet is unforgiving and a merciless lifeless animal that eats up all industries that get in its growth path. Just ask Barnes & Noble and Blockbuster. And, like Netflix learned, don't mess with success and turn off the millions of users and get greedy. They will drop you and go to the next site that streams movies.

Do you think Best Buy will survive the rise of the machines? Who else is a target for the big and mighty World Wide Web? Countries have fallen to the internet. Watch your office buildings and retail stores carefully. Even the U.S. Post Office is in danger of becoming obsolete. But I hereby announce that the real estate recession is over and the next cycle has begun!

“The past is an illusion and the future is unknown, you only have the present moment, so live life to the fullest.”

Do Bad People Think That They Are Good?

Take the guy who drives like a maniac and cuts you off and then gives you the finger for driving too slow.

Or what about the person that gets back the wrong amount of change from a clerk at a store or fast food place? You know, they gave the clerk a $10 bill and the clerk gives back $15 in change or something like that, then instead of correcting the mistake, they keep the money and call the clerk stupid when they get out of the store. Further, they are proud they got the money. Is this wrong?

Today I went to see a young man have his first amateur fight as a boxer. I know him and his father from my working out at Wild Card Gym in Hollywood. I had a mid-life crisis, joined the gym and fell in love with the sport.

I went to East L.A. to a little boxing gym named "Eddie Heredia's" to watch Terry Bodine have his first fight. He won by TKO in the first round and it was very impressive. He was beyond joyful as he leaped up on the ropes with fists extended in victory. I was so happy for him.

What really moved me was that prior to all the fights taking place, the announcer (former Gold Medalist Paul Gonzalez) asked everyone to rise and sing the national anthem!

Granted, the guy could not sing, but every one of the 100+ people rose and sang with passion and respect. The day was about young men competing and playing by the rules and appreciating what they have. I was impressed with the entire afternoon and all of the participants. I have been boxing now for 3 years and am still learning the discipline of what it takes to get in that ring!

Over the past few years a select group of Savoy investors decided to take advantage of the economic turmoil and go into strategic default. My definition of a strategic default is the deliberate act to defraud a lender. Now why would anyone want to defraud a lender with laws that if proven, could include jail time? The simple answer is greed.

In the commercial/industrial real estate world, this is happening on a small basis. But it is rampant in residential real estate, where up to 30% of all homes in default are strategic. The purpose of a borrower and Savoy investor to enter into the world of strategic default is to renegotiate the current loan to a lower rate, possibly a reduced principal adjustment, or break an onerous loan and refinance without penalties. Another more personal reason would be to show weakness in equity to get out of a costly divorce or other personal gain.

Now I’m not giving legal or marriage advice here, so keep cool. I’m also not suggesting that you as a property owner, home owner or interested party enter into the strategic default game, as you could get stung!

Another game the really creative defaulter will do is to enter into strategic bankruptcy in order to wipe out the creditors and reset their financial position. This can buy time while the owner continues to draw income from property, while not paying the mortgage. Again, I am not suggesting that you stop paying your bills and go bankrupt.

There is a single asset for real estate bankruptcy that has many pitfalls and the lenders can be tough on those types of borrowers that try to delay a foreclosure. Bankruptcy is supposed to entail filing a plan to reorganize and turn a profit at some future date. If the property is owner occupied, what is going to be the difference with a bankruptcy? Probably nothing, and the judge is going to void the asset from the bankruptcy.

There are some expert Bankruptcy Attorney's that can guide you through the maze should you need to consider delaying a foreclosure and reorganizing your portfolio. Here are a couple of reputable attorneys that I know: Sara Chenetz: 424-239-3464; and David Kupetz: 213-626-2311.

So, is a strategic defaulter a bad person doing good, using all the laws at their disposal to improve the bottom line? How do you feel about a person or company that uses default as a tool to get out of paying their bills? What if they are really wealthy and are just using a tool to defraud the banks?

I’ll let you decide.

Horse Racing & Real Estate

When I was 8 years old, my dad, my uncle Sam and cousin Howard took me to the race track at Hollywood Park. It was an amazing day for us as we won and won big. I will never forget that they asked me who to bet on. The first horse I ever picked was Celestial Pride, and he won at odds of 15-1! Just to prove to everyone that I was an amazing handicapper, I chose Pink Dust at 45-1 for the next race and he went on to win too! Needless to say, I was hooked. I think if I could drive they would have bought me a new Cadillac.

Over the following years, I become a big fan of horse racing. At Hollywood Park I saw Seattle Slew get beat by Bill Shoemaker riding a small horse named Kennedy Road. At Santa Anita, I watched the greatest horse of our lifetime, John Henry, take on all challengers and win at the ripe old age of 9. That's like Magic Johnson playing basketball at 80!

Who can forget Cigar and Zenyatta! There are so many wonderful memories. These horses had courage and the hearts of a champion. It was a joy to watch them compete. I had the opportunity to meet Joe Masino of Class Racing Stable 12 years ago. He got me interested in becoming a horse owner, so I bought a 25% interest in a race horse. We bought the horse, Monterey Jazz, as a 2 year old from the breeder for $85,000.

Monterey Jazz was a big boy. He did not start out too well. He lost most of his races at 2 and 3 years old. Then something happened. He ran on grass and found a new home. Monterey Jazz won a claiming race going away at Hollywood Park, and thank god no one claimed him. In a claiming race, anyone can buy your horse. Next he ran in a stakes race at Santa Anita called the Sir Beaufort. He won a close race. Next was the race of his career: he ran in the Strub Stakes, named after the founder of the Santa Anita Racetrack. Monterey Jazz won by 8 lengths in 1:45:20, the fastest time in the Strub Stakes in the 1-1/8 mile race.

Jazz had a minor setback in his next race, the Million Dollar Santa Anita Handicap. He went off as the big favorite with a field of 12 horses. The track had been slowed with rain. Jazz, in his typical style, went out in front but went way too fast and the slow surface wore him down. He finished last.

We then put him on a plane and took him to Dallas Texas and Lone Star Park to run in the Texas Mile on the dirt. Jazz and jockey David Flores went out in front and never looked back. He won by 8 lengths without really breaking a sweat. Monterey Jazz would go on in his career to win the American Handicap with the blistering time on the 1-1/8 mile turf of 1:45:3, the fastest of that race. He would wind up running a track record and still holds that record for a mile on the turf at 1:32:2.

Just as sometimes happens in real estate partnerships, we sold Monterey Jazz this week. He will now be running in the southwestern U.S. with new management and ownership. He wound up winning almost $1 Million in purses for our group. I met many great people during my time with horse racing. Many people involved in the real estate business buy horses as a tax shelter for their passive income. You can deduct 50% of the cost of a race horse the first year (consult your tax advisor or check out Joe at www.classracingstable.com).

This year our brokerage business has started out with a bang. We have multiple deals going into escrow and we are getting multiple offers on properties. The action is hot and heavy. SBA loans today are 4-4.5% with 25 year amortization. Not a bad deal. That is very cheap money.

We are listing many apartments, foreclosure properties, Downtown Los Angeles development properties and warehouse facilities, either for sale or lease. I predict that 2012 is going to be a big year for Los Angeles commercial, industrial and multi-family real estate.

Deal Over a Meal

During the year-end holidays, all I can think about is food. So I was thinking about some of my favorite places around Los Angeles that I love to eat at. If you are involved in real estate, you know that many deals have been made over a meal. It seems that it is a tradition to do business over a breakfast, lunch, and sometimes even dinner. Sitting at a table and breaking bread seems to make a deal feel better.

Back in the early 1990's, my brother Jeff and I were selling the old Orbach's Department store (an RTC property) to our old client Mehdi Bolour. We had our offer accepted at $10.5M and delivered a signed agreement with a $500,000 non-refundable deposit. Our client invited us to lunch at the Pacific Dining Car to tell us that he as the buyer and payer of our commission was going to cut us from 4% to 3%. This was the first hundred thousand dollar lunch I ever had. The worst part was I paid for the lunch too! The Dining Car serves great steaks by the way, but I love their eggs benedict for breakfast… the BEST.

The rest of the story is also eye-opening: the RTC had the right to reopen the bids. So we were kicked out of escrow and had to rebid. We had leases ready to go with a health club for the basement, a supermarket for the ground floor and a clothing retailer for the second floor. This was a “home run” deal. Our client was willing to bid $14M and would still come out okay.

Well, greed got the better of him and he only bid $10.9M. Cedars Sinai Hospital bid $11M and the State of California and Petersen Automotive Museum bid $11.1M. I guess you can tell who had the inside info? Not us.

Needless to say, I have mixed emotions whenever I go to any event at the Peterson.

Breakfast can be hard to do well, and as I said, the best place for breakfast is the Dining Car in Downtown LA. It’s open 24 hours and the one in Santa Monica is good too. For really good pancakes you have Jacks N Joe and of course the Pantry. The Pantry has the absolute best coffee. When I was a kid my dad took me to Vickman's, where I also went when I first started working Downtown. That was the place to go to see all of the Produce District people and other manufacturers.

At Vickman's, I met many of my clients that I still have relationships with 26 years later. I met Harry Lumer of Joe's Parking there and became their broker for many years. At the time they were the largest owner of land in Downtown. I continue to do business with the Fleischman family, who had one of the biggest janitorial supply companies prior to the Home Depot age. The business is long gone and father Art has passed, but the son still manages their real estate holdings in the Arts District.

The art of meeting people might be lost on most of the population, but having a sit down meeting is still the best way to do business. Seeing someone's reaction to the discussion back and forth is more telling than an email. So I still like to meet over food.

The best Chinese food in Los Angeles is Yang Chow on Broadway in Chinatown. The Slippery Shrimp is to die for, but if you need to be authentic, then a short 15 minute drive to the famous 888 in Monterey Park is great too.

Being Jewish, deli's are a big part of the food thing. I like most of them, but here are a few of my favorites:

1. Canters: simply the best chopped liver, potato salad and an amazing barley bean soup.
2. Izzy's at 15th & Wilshire in Santa Monica has the best kishka.
3. Langer's on Alvarado St. has the best pastrami sandwich.
4. Jerry's: chicken soup = YUM!
5. Philippe the Original is not a deli per say, but it’s still fantastic for a French dip sandwich. Here’s a tip: the lamb is heaven in a double dip roll.

A little dive that is also amazing is El Colmao on Pico Blvd near Vermont Ave. Now if you’re not a city guy, it can be a little scary in the parking lot, but this Cuban restaurant is golden. If you like Versailles or just Cuban food in general, get here fast.

Another sleeper that has been a Los Angeles staple is Harold and Belle’s, which was recently in the paper because the ownership got a free loan from the city. They serve the most amazing Creole food. The Chicken Creole and the giant lobster tail is the best.

Other great Downtown places are the Palm, Roys, the Farm, Bottega Louie, and Freebirds World Burrito at Figueroa and Jefferson by USC.

If you like quality wine, another secret gem is the San Antonio Winery. Nestled in northeast Downtown, this oasis winery also has very good food (cafeteria style) and is perfect for a long lunch. The wine is top tier.

A great place to eat Mexican food is in East Los Angeles at El Tepeyac Café. The food is very tasty, not spicy, and they serve huge portions. This place is a deal closer.

If you want Italian, the best spaghetti in America is Andre’s at 3rd and Fairfax. It has been simply the best for decades.

For the more dressy fancy dinner meetings I like Morton’s, but then I might venture to Beverly Hills and do the old fashioned Spago. It is a wonderful dining experience and a place to be seen. My favorite restaurant for beef is Lawry’s the Prime Rib on La Cienega Blvd, home of the “Beef Bowl” competition between the two Rose Bowl teams.

I look forward with optimism and hunger to a fantastic 2012!

A Look Back at 2011

As another year comes to a close and we look back at 2011, it ends with more questions than answers for all financial markets, including real estate. Back in the 1980's, when the stock market was tumbling, I remember driving to work and seeing that the stores on Olympic Blvd. were all open and things were operating as usual.

However, why does this current downturn feel more like a pending calamity that will have no end, no silver lining and no way out?

I think that instant communication has created a panic society that is reactionary. What do I mean? As news travels at the speed of light over the internet, the general public as well as investors and large money fund managers react to news, rather than take the time to consider what it really means.

Watching Jim Cramer’s stock market analysis for 15 minutes each morning before I go to my workout is a prime example of panic and reaction, and the lack of any credibility of our news and its analysis of why things happen.

For the past months, Greece’s debt and bailouts were the reason that stocks climbed, but recently the market dropped 400 points with the Italian debt crisis as the hot topic. These are distractions that go along with the Penn State crisis, housing numbers, unemployment and the stateside visit of Prince William.

Now for the majority of Americans, this is a frightening reality. Low interest rates are affecting most older retirees as they have a fixed income that is being absorbed as the equity is being used. Market interest rates should be at 7%+ and prime rates should be there as well. But, we are in a time when “too big to fail” economics prevail and the average American is up the creek without a paddle. Medical costs are a disaster and again, the average American is in the difficult position of deciding between food, shelter or medical needs.

This is a real problem that requires hard answers if it is going to be solved. As I watch the republican presidential debates, I see that we are in worse trouble than I could imagine. Which one of these people could I trust to actually do anything, and which could captivate our country and world to make a real impact? I think Newt Gingrich may have a chance, but we’ll see. The other guy is Ron Paul, who is a genius in economics, but the media makes him out to be a nut.

So we have very few choices and they are not too good. This is why people are marching in the streets and this is why so many people I talk to are somewhat depressed. The media is feeding on any bit of tabloid crap they can report, and sensationalizing everything with a negative spin.

Fortunately, when I get in my car and drive to work, I pass millions if not hundreds of millions of dollars worth or real estate. Bernie Madoff can't hide that on a balance sheet, nor can the hedge fund managers pick it up and move it while we sleep. I can rest easy that if I have a good tenant and low debt, and manage my affairs properly, I will be safe from harm’s way. Real estate in Los Angeles is the single safest investment you can make.

We have a few earthquakes, but for the most part, very little property damage when they occur. The risk comes with not being educated and just buying something you do not understand. I can say that although I have been in real estate for over 25 years, I don't understand the office market. When I have that type of request, I usually refer it out to someone with more expertise. I think I understand retail and am an expert in industrial property, so I look for opportunities in those markets.

My goals for 2012 are the following:
1. Buy more industrial buildings in Los Angeles
2. Buy properties that are adjacent to my existing holdings when possible.
3. Grow my brokerage business by continuing to provide honest market insight for my clients.

Every generation has been faced with challenges that cause the majority to sit and wonder what will happen, while the few build their wealth, holdings and real estate portfolios. They buy first notes, invest in notes, buy buildings and reposition them with different uses and tenants. They are conservative yet aggressive. These syndicates, individuals, families and corporations have a business plan and stick to it.

As we are exposed to uneducated and over-educated reporters and experts who tell us what we should think, it is easy to be distracted from your goals. It is easy to be frightened into inaction. The time to buy is when everyone else is selling, when most are frozen and panicking.

As I see the growth in the companies that have planned well and survived the downturn, I see light at the end of the tunnel. I see many opportunities. This is am amazing time to be alive and I choose to live and thrive. 2012 will be a challenging market to navigate, but if you surround yourself with an expert or a team of experts you can realize success.

Have a happy and healthy holiday season and a great New Year!

Tribe of Ants

You probably are like me and have never heard of Yang Lan, Sina nor Tencent before. Yang Lan is a most beautiful woman and also the "Oprah Winfrey" of Mainland China. In a recent presentation, she discussed the current status of China, social media and the potential future for the next generation of young Chinese.

Sina and Tencent are two micro-blog sites that respectively have 140 million and 200 million daily users and are the Chinese equivalent of our Twitter. 80% of the users are less than 30 years old. From 1980 to 2000, the one-child policy was in effect and most people chose to keep the son and abort the daughter. So there are 30 million more boys in this age group than girls. Imagine the problem there.

The education rate is high with this new generation, with only 1% illiteracy. 80% go to college. Here is the tough part: the average starting salary for a college graduate is $400 per month. But, the cost of an apartment due to ramped up growth is $500 per month. So these young grads entering the job market must share a small space with multiple people to save any money and to buy the goods they desire. They call themselves "The Tribe of Ants".

They also desire the best cars, clothes and all the things of status that will give them self worth. Five million people per month in China are purchasing new cell phones. These numbers are insane to comprehend.

There are 1.3 billion people in China. 100 million are in the ruling class (i.e. the government). 300 million are living in high style, better than the average high income earning Americans, while 900 million are living in poverty. When I discuss these numbers and issues with my Chinese friends and local business clients, they say they fear a political and social uprising in their home country.

The young and educated are Tweeting, or Tencent-ing about social misdeeds, corruption and other things that the government is doing that upsets the general population. Social justice and corporate greed are at the top of their list of concerns.

We have 300 million people living in America. 40-45 million are unemployed today. It is very hard to find a job fresh out of college, and even 50% of the MBA's are unable to find work. The Occupy Wall Street movement that is gaining momentum across the country is calling for an end to corporate greed and government mismanagement. Some want to shut down Wall Street, end capitalism and replace it with a redistribution of wealth, and give everyone free medical care and a living wage without working. I don't know what else they are asking for, but it is a little scary. I think things will get way out of control.

The reality is that our work force is shrinking, which means that the average person’s ability to buy goods and services at their local retailers is diminishing. People are cutting back and even those that can afford to buy all items large and small are also holding back. Companies are not hiring, and even government departments like the Post Office are letting people go. They are also going to stop Saturday deliveries.

Meanwhile, Los Angeles real estate continues to be strong and the market is hot. The top selling products are apartment buildings, and they are trading at very low cap rates (meaning the annual return is low), between 3% and 8% except for special foreclosure deals. We had a bankruptcy auction recently and the property sold for 100% over the asking price with three bidders going at it in court. Land for development of apartments is also in high demand. Corporate tenant-leased investment property is also in demand as investors are looking for a higher rate of return on their dollars than a bank can give them.

Additionally, interest rates are at a all time low. I was quoted 5% interest for a land acquisition and an SBA loan. For an owner/user the interest is at 5% or sub-5%. You can be in business and buy a building for your use and get a 20-25 year fully amortized fixed loan at 5% or less, which is amazing. In Los Angeles, industrial real estate vacancies are at 4.5%, but there are still deals to be had.

The desire to be in Los Angeles is great overseas. EB5 is a prime example of a program where a non-US citizen can invest $500,000 in a real estate deal and get a visa/green card. This is what is funding the deal across from LA Live for the new Marriott Hotel. The developer has partnered with equity promoters to raise the money and I heard it has been done. America is the land of opportunity, and many foreigners want to have their children go to school here and live in the safety of America. They watch our movies and TV shows and want to be in Los Angeles. They want to see movie stars and go to Laker's games, shop on Rodeo Drive and visit Las Vegas.

The average Chinese person cannot purchase quality goods and services due to the low economic value of their labor/work force. They cannot freely travel or realize their life ambitions. But the upper class can spend $500,000 and get into the United States. On the other side of the big pond, the average American is closer to falling into the same boat as their Chinese counterparts. People are struggling just to get by and are not being afforded the “American Dream”. Young Americans, welcome to "The Tribe of Ants".

Prediction Watch:

QE3 any day now.

An American bailout of $1-3 Trillion for Europe.

More hidden inflation with low interest rates, so keep buying the best Los Angeles real estate.

$2,000 an oz. gold is next.

To Serve Man

In the 1960's TV series Twilight Zone by Rod Serling, there was an episode about aliens that brought amazing gifts to mankind and Earth. The cure to cancer, famine and many other gifts. One of those gifts was a book, but no one could translate the literature. Humans by the thousands were being given free trips to the new alien planet. When the code was finally broken, it was discovered that the book; To Serve Man, was a cookbook!

In today's volatile economy, it seems that we are all being cooked, in the soup, so to speak. What is predictable but most troubling is the blame game that is going on by our so called leaders and the media. No one wants to take responsibility for the situation, nor offer real solutions to the problems.

The blame game is an old political game to maintain power, or not to lose what power is held. The President, with his address to Congress and the nation tries to imply that the Republican Congress is to blame for the lack of jobs and delay in moving the country forward. The liberal media jumps on the bandwagon and tries to sell this to the public. Then when the validity of the plan is broken down to its total sum of parts, and there really is no defense to its chance to be successful, the current administration starts to harp on President Bush.

The problem with the blame game is that it does not help. It looks backward and not forward. It does not take into account the current situation and it does not provide reasonable methods for real solutions. Now, the Republicans are not much better, as they use their media influences to put road blocks into the system and this is not to protect us from the future "socialist policies" of the Obama administration. This is solely to make the President and Democrats look bad.

Real solutions don't have labels of Democrat or Republican, liberal or conservative, good or evil. They don't bash each other on CNBC or Fox. They come from people who want to do the right thing and move forward. Now, understanding the root of a problem is the first step to solving it. Then, having the courage to change the current problem is the real hard part. Why is doing the right thing so hard? Because then you most probably will not get re-elected!

We have been so conditioned in our lives that the person who tells us the "sky is falling" even if it is, will be the messenger. And we all know what happens to the messenger!

So we have hit the double dip turning point. The markets will be going down again, and without solid cooperative initiatives, this drop will be rather significant. So far it has hit us slowly, by attrition. The numbers are so alarming and shocking that they are almost being overlooked:

• Unemployment is at an all time high
• Housing is at an all time low
• Bankruptcies are at an all time high
• Interest rates are at an all time low
• Debt is at an all time high
• Consumer confidence is at an all time low
• Worldwide political turmoil is at an all time high

If the above was in a book given to us by aliens, when we deciphered it we would do our best to defend the world against the invaders and expel them. Rather than get in the blame game, let's discuss some real (maybe radical) solutions to our problems.

The way to build a solid financial foundation is from the bottom up, not trickle-down economics (with all due respect to my favorite President, Ronald Reagan). In September 2008, I had a discussion with our local U.S. Congressman about the financial situation we were heading into. I gave him a grave warning that the commercial real estate market was about to crash. I explained what was happening in the credit and business worlds of real estate, and to my clients. Then I offered the following solutions. And, as I see this double dip hitting the markets again, I offer these same solutions today:

• The federal government should enact an emergency law that all existing residential real estate loans under one million dollars shall become fixed at 2% interest only for the term of the current economic crisis.

• New residential loans under $1M shall be fixed at 4% interest only, as well.

• All credit card debt shall be fixed at 2% interest only. New credit card debt shall be 4% interest only.

What will these few aggressive economic moves do to help us out of this double dip and move toward economic stability?

The ability to pay a reduced interest will provide more net cash for millions of Americans. The reduced interest with the option to pay or not pay the principle until the crisis is over will allow millions to spend that saved money on things that they need or want: Better education for their kids; repairs to their cars and homes; purchases of new homes; rent a better apartment; go out to dinners and take trips.

The above economic changes will reflect in the stabilization of the housing market. It will stimulate buying and stop the massive foreclosures, and millions will see the “light at the end of the tunnel”. They will be able to afford the monthly payments and will want to make the payments because they will reestablish equity as the markets stabilize.

Having the credit card debt reduced to a monthly payment that will be manageable will make the average person also feel that they have more access to money to spend. By doing these simple emergency policies to help everyone, from the bottom up, new businesses will form. People will be hired as demand grows. We will have a vibrant growing economy that can be weaned off the low interest and get back to being productive.

Back in September 2008, the Congressman told me in reply to my ideas that “we are not going to do anything for the people". Where was my tape recorder? But I don't want to hurt anyone, nor blame a good man that did not see business from the views of an insider like me. I just want to share a real story and my ideas with you, my readers.

There are many more things we can do to help our economy. And there are good people that want to do what is right. They just get caught up in the system of the blame game. I suggest they throw out the old cookbook and get a new one, before we all end up in the soup.

Through the Wormhole

In the cable TV series Through the Wormhole narrated by Morgan Freeman, the amazing questions of life and the future of life are asked:

Can we travel faster than the speed of light?
Will man live to be immortal?
Is there life on other planets in the universe?

These and many more questions are asked, and more often than not when the show is over, there seems to be more questions than answers.

I just returned from a short camping trip with my son Sam, my nephews Jeremy and Jesse, their father Steve and Larry Musgrove (my boxing coach). We spent a few days at Jeffrey's campground just outside of Bishop, California. As I lay in my sleeping bag at an altitude of 8,000 feet under the stars, I saw untold stars in a pitch black sky. It was magical and mysterious, breath taking and inspiring. I was instantly transported from a world of hustle and bustle to the tranquility and solitude of the wilderness. All work, real estate and the deals in progress were forgotten for the time and true relaxation set in.

During these times of uncertainty and volatile stock markets, doom and gloom prognosticators abound. They thrive on the discussion of political unrest, economic turmoil and financial swings that can shatter your nerves.

These are the times to understand what is really important in life and spend time doing those things. Understanding the up and down cycles of the real estate business can prepare you for those crazy times when the world seems to be out of control. Your financial survival depends on understanding these cycles and preparing for them.

Here is a list of the basic skills and rules that I have lived by to succeed:

1. Understand and control the use of leverage.
2. Bulls get rich, bears get rich, but pigs get slaughtered.
3. Buy when the masses are selling and sell when the masses are buying.
4. Don't put all of your eggs in one basket.

In 1999, I bought my first condo to live in for $220,000 with $20,000 down. I flipped it in three months for $300,000 and bought a house for $540,000. I sold the house two years later for $1,000,000 and bought a house that I live in today for $1,400,000. I started with $20,000 and turned it into $1,400,000. Three years ago, the house would have sold for $2,600,000, but I intend to live there quite some time as I am content. I have a $700,000 mortgage so I still have great equity.

This is an example of leverage that can turn $20,000 into $1,400,000+ within a short time. I could sell and get $700,000 profit, but then where would I live?

The same types of deals have been made for years in all types of investment properties. However, using strategy and being conservative can be very helpful when markets change direction. Therefore, understanding leverage, risk and reward, and knowing when to sell or to pay down those loans as the cash flow is coming in, can make the average investor look like a pro. The building of equity will pay off in the long run.

I have had many clients that continued to take risk and leverage up and up without any consideration for a down market. Those clients lost properties and millions of dollars. Others that were prepared, lowered their debt even in the high times and moved forward but with caution. They are now the buyers of lost properties.

Some real estate pros, who amassed huge portfolios of all types of real estate, got greedy and leveraged their entire life's work and put the money into one deal. But delays in construction, market upheavals, the lending and finance crisis, and actual housing declines caused a crash and a loss of a life's work. Bankruptcy, default, legal lawsuits and disruptions of family dynamics are the repercussions of greed. Don’t gamble recklessly in markets that always have up and down cycles .

I am asked (especially in times like these): "What will happen to the market?". If you have been following my blog posts, you know my answer. But I feel like I’m in a "wormhole" myself, as any “answer” is only based upon an educated guess. But this time the situation is much different than anything we have seen in our history.

Real estate values will act in accordance to the basic principles of supply and demand, and depend as always on “location, location, location”. Some properties will rebound and thrive, while other properties will not. Predicting good and bad markets can seem risky for the investor. For the end user, not so much. Predicting the end user’s needs and their ability to thrive in a given economic environment is essential to every real estate transaction.

As a user, the owner of a business can predict the general trends of his market. As an investor, this can be tricky to follow. Today, location must be a priority to determine if a real estate deal is good or not. Buying a 100,000 sq.ft. warehouse for $20 per sq.ft. in Kentucky with a major corporate tenant is not a good deal if you have no chance to replace the tenant should they move or close up. The same warehouse that is $100 per sq.ft. in Vernon, CA might provide a better opportunity to re-lease should you lose your tenant. The same goes for an apartment complex in a suburb of Dallas vs. the San Fernando Valley or West Los Angeles.

At the end of the day, long term success depends on understanding location and value and predicting future needs and markets. The population of Los Angeles and Southern California continues to grow and the future requirements for housing, services, etc. will expand also. Get educated before making a plunge into a market that you don’t understand. Stay leverage safe, as if the property you just leased might go vacant for a year or longer. Can you still maintain it and hold it? If so, you can take the risk and absorb the potential downside.

Equally, but more important to me, live life as if there is no tomorrow. Enjoy family and friends as they are the most important things in life. Give of yourself generously to the next generation and to those less fortunate. After all, you cannot take it with you. Life can be a journey through a wormhole, as the next day may bring something we never anticipated. That is what makes each day a blessing and fun.