Monthly Letter

May 1, 2008

Re: Monthly Letter

Dear Clients:

Golf is like taxes, you drive as hard as you can to get to the green; only to end up in the hole.

“Wall Street does panic better than anybody I know. The same guys that were saying nothing can go wrong [before the credit crunch] are now saying nothing can go right.”

- John Levy, President of John Levy & Co.

John Stossel writes”Politicians love a ‘crisis.’ John McCain, Hillary Clinton and Barack Obama all think that the government should bail out homeowners who can’t pay their mortgages. When they say the government should do this, they mean the taxpayers, including those who are paying their mortgages. They also think the government should regulate the lending and investment industries further. Why? Because ‘crisis’ justifies making big government bigger. It’s why we now have a global warming ‘crisis’ and in previous years we had ‘crises’ over avian flu, the Y2K threat to computers, imaginary cancer spikes caused by pesticides, killer bees flying up from Mexico, and uncontrolled population growth leading to a ‘Population Bomb’ that will bring ‘riots and mass starvation’ by the year 2000. This is not to say that lots of homebuyers aren’t having a hard time. But the rapid rise and fall in housing values in some parts of the country – and the rippling consequences at each stage – do not justify scrapping what we know about economic success and turning to government control. Prosperity and stability come from people being free to innovate and produce – and yes, fail…The best regulator of economic activity and source of knowledge is free competition. Of course, government inhibits that in many ways. If we want to avoid disruptions like the current one, let’s undertake a wholesale examination of government intervention in the economy. Freedom, not control, is the ticket to success.”

As many of you know amongst all the panic we at CDC Commercial try to stay focused on the ball. One of those balls is jobs and unemployment. Unfortunately, for the first time in 15 years, San Diego County suffered a year to year decline in jobs last month. Unemployment in the county moved above 5% (from 4.2% last year at this time). With costs rising and unemployment over 5% our position on rent increases and pushing rents on options has changed to neutral. Work harder to retain existing tenants and make concessions to keep them. Keep rent concessions and lease terms short though because the bounce back will be big when we see it over the next couple of years.

Despite what you might read about commercial delinquencies rising, it really isn’t true yet. Banks report residential land development and multi-family both as commercial. These areas are all up, however, delinquency of retail and office buildings amounts to less than one percent.

In the meantime, interest rate indices are down from the end of last year (Treasury, Labor, Prime), however, lender spreads have gone up more than index rates have gone down! The net effect is slightly higher rates but historically they are still very low (6% – 7 % for 10 year fixed).

So now where do we go from here? Stay in the game till 2010 (I still remember the cry, “Stay alive till ’95) and protect your assets. It will take the next 12 to 24 months to fully restore confidence to the credit markets, squeeze the excessiveness out of the last 24 months and get through the election process.

A lesson here (much more in the residential market), when the prices of real estate exceeds its replacement cost plus the rate of inflation, a correction is inevitable. Now this raises a very interesting point as to why I see a quicker bounce than most to the market. Replacement costs continue to rise and inflation continues to climb creating a base for value. This is creating a great buying opportunity for savvy investors (and will for several years ahead.). Prices are falling well behind replacement plus inflation!

Remember, real estate investors make money in down markets. The last two down turns had high interest rates – so far not so this time. Buy as the market over-corrects. Opportunity isn’t just knocking, it has a baseball bat and it is knocking your door down.

Remember the adage, “Some make it happen, some let it happen, and others wonder what the hell happened.” Remember too, that we at CDC Commercial wake up every morning unemployed (a salesman’s destiny) and we hustle through the day to make deals that employ others, keep your income up and our tables with food on them.

I watched Charlie Wilson’s War this weekend and had to chuckle when Tom Hanks’ character was asked, “Why is it, that politician’s rant and rave, but get so little done?” And he politely replies; “Tradition I suppose.” I hope, in this political season, you enjoy my political humor story below.

Regards,

Don

Don Zech

CDC Commercial
Real Estate Services

A little boy goes to his dad and asks, 'What is Politics?'

Dad says, 'Well son, let me try to explain it this way:

I am the head of the family, so call me The President.

Your mother is the administrator of the money, so we call her the Government.

We are here to take care of your needs, so we will call you the People.

The nanny, we will consider her the Working Class.

And your baby brother, we will call him the Future.

Now think about that and see if it makes sense.'

So the little boy goes off to bed thinking about what Dad has said.

Later that night, he hears his baby brother crying, so he gets up to check on him. He finds that the baby has severely soiled his diaper.

So the little boy goes to his parent's room and finds his mother asleep. Not wanting to wake her, he goes to the nanny's room. Finding the door locked, he peeks in the keyhole and sees his father in bed with the nanny. He gives up and goes back to bed...

The next morning, the little boy says to his father, 'Dad, I think I understand the concept of politics now. '

The father says, 'Good, son, tell me in your own words what you think politics is all about.'

The little boy replies, 'The President is screwing the Working Class while the Government is sound asleep. The People are being ignored and the Future is in deep shit.'

April 1, 2008

Re: Monthly Letter

Dear Clients:

Ok folks, time to shift gears. We warned about this slow down in our monthly letters last year and this years’ Gold Report (www.cdccommercial.com/GoldReport2008 ). We laid out strategies. No reruns today, we’re looking ahead. Let’s explore what’ll really make you happy in the weeks and years ahead (besides being 100% leased, abundant capital, low cap rates if you’re selling, and high cap rates if you’re buying!). Warren Buffet probably sums it up best when he says; “Success is getting what you want and happiness is wanting what you get”.

Happiness? Why bring “that” up in this insane market? Because most of you are like me with a secret split personality; sometimes happy, sometimes not – sometimes happier. The signals are out there: Bear market and recession ahead, national politics and world jihad adding fuel to the fire.

According to a recent report by the UN; Americans are the most productive workers in the world, thanks mainly to technology. With that thought in mind, some of you have been receiving this monthly letter by email and in writing. With this writing you will only receive it by email, unless you don’t have email or have requested otherwise.

Employment picked up slightly in San Diego in February adding 4100 jobs and bringing the county unemployment rate down to 5% from 5.2%. That’s above last February’s 4.3%, but when I took Econ 101 – 5% was considered equilibrium!

What went little noticed is that Craig Venter moved back to town. Venter is the world renowned gene discoverer and founder of Synthetic Genomics. The company, based in La Jolla, is now hiring all kinds of “knowledge workers”. This is like having Irwin Jacobs moving Quallcom here before the world carried cell phones. This is just another example of how San Diego will continue to evolve as a knowledge based economy (do you think it’s because smart people like good weather?).

Speaking of deep thinking; you have heard the Zen question about the tree falling in the forest, but if no one is there did it make a sound? In today’s market I would re-ask it to you; “If a seller doesn’t want to sell or a buyer doesn’t buy and there is no deal, then is there a price decline?

I don’t know the answer to that for sure, but I do know that we can be thankful that the federal government reauthorized the terrorism risk insurance program in the end of December. This should provide stability and health in the insurance and property markets and the economy as a whole.

Bismark said that people never lie so much as after a hunt, during a war or before an election year. So while all the liars line up this election year let me tell you a couple of facts. 1) The surplus of receipts to expenditures for social security will begin its decline in 2009 and by 2017 will become a deficit. 2) In 2011 the Bush tax cuts will expire unless extended (that’s a big tax increase without the tax increase that the politicians are talking about).

Most importantly let’s get out and tell the Feds, everyone in Congress and whoever sits in the White House come 2009, that we want an end to the bubble and bust cycle in financial markets. Encouraging reckless gambling and then bailing out the worst and biggest gamblers is no way to run an economy!

Again from Mr. Buffet, “I may have more money than you, but money doesn’t make the difference…I would rather have a cheeseburger from Dairy Queen than a $100 meal…the difference between you and me is that I get up everyday and have a chance to do what I love to do”.

I think I may have found happiness!

Regards,

Don

Don Zech

CDC Commercial
Real Estate Services

March 3, 2008

Re: Monthly Letter

Dear Clients:

A superior sailor uses his superior knowledge so as not to have to use his superior skills!

I recently attended a seminar to overcome a mental disorder many of us are being troubled by. The seminar was entiltled; Overcoming Recession Obsession Anxiety. Having been in “the business” almost 25 years now, I find that experience is a marvelous thing. It enables us to recognize a mistake whenever you make it again! Well the risk with our Recession Obsession Anxiety is that eventually consumer and business sentiment succumb to the anxiety and you do in fact become sick. These days on Wall Street an optimist is hard to find!

As we have pointed out in this years Gold Report ( www.cdccommercial.com/goldreport2008 ), the US economy is in a position to be ravaged by the two headed monster of inflation and stagnant growth, otherwise called stagflation. Unfortunately, the Fed and our Congress have embarked on the quick fix methods and are preparing to feed the boom to bust cycle that has been our economy for the last ten years. Unfortunately, if the Fed’s policy of massive interest rate cuts succeeds in reviving the economy by years end, won’t we also see a spurt in inflation? The argument to date has been that with a slowing economy comes slower growth and less upward pressure on prices. However, a one year 17% increase in energy costs and 5% increase in food costs are not likely to recede, because the pressure is caused from outside of our borders (Global demand). I think we are likely to see more rate cuts. Bill Gross at PIMCO says the Fed will have to go to 2.5% or less to save the housing market. Doesn’t all of that – higher economic growth, a flood of cash into the economy, slashes in interest rates – create a massive inflationary push.

Mainstream advice during a recession is to buy bonds and wait for the rate cuts. However, bonds may not be the haven this time. If the cost of living rises unabated, that will depress bond prices. A traditional refuge in inflationary times is gold and we have certainly seen its price rise. Unfortunately, gold is highly volatile and it doesn’t pay out any income. So how do you buffer yourself from the ravages of inflation and a possible stagnant economy? You need to find an investment that combines income and price and rises with inflation expectations. Better yet, it should be a real commodity (not a paper asset or loan) and if you can borrow to buy it you can pay back the debt with cheaper dollars in the future. What is this magic investment you ask? Well it sits beneath your nose, it is off course commercial real estate.

Net operating Income (NOI) often continues to improve through a mild recession due to the lease terms that average three to five years. Even if a landlord had to lower the asking rent, tenants renewing a lease will still end up paying more over the lease term given the annual increases. Falling interest rates will give investors a better spread until the economy gets better and then rents will rise again. Plus cap rates may rise with fewer investors in the market and some sellers believing the “sky is falling” causing a buying opportunity.

The fundamental metrics of the commercial real estate market – vacancy rates, net operating income and capital available for investment – remain strong. But the erosion of the credit market and consumer confidence are starting to hurt properties. If nothing else we as agents are facing tenants and buyers who have adjusted their expectations. Despite low vacancy factors and still high TI costs, tenants believe they should get a bargain basement deal. The gap between “asking rent” and “offered rent” is growing. Although we are in “sales” an inordinate amount of our time is spent educating our prospects as to the real (instead of perceived) conditions of the market. We are hoping this is translating into more deals done while most of our competitors are on the sidelines bemoaning a slow market. If you don’t already know the CDC story and my approach to life and “the business” you might enjoy a recent profile that the Dan Diego Transcript ran (www.cdccommercial.com/theCDCCommercialStory ).

Business Week recently reported that the signs that we have turned the corner are likely to be;

1. Fading stagflation fears

2. Stable credit and housing markets

3. Especially low interest rates

4. Improved corporate earnings

5. “Blood Curling Screams” – which they report as Wall Street investors throwing in the towel.

Recent affirmative votes for school construction and casino expansion will couple with the fire storm rebuilding efforts to lift the construction industry by Summer and into the Fall.

My favorite tag lines of the New Year – 2008 is going to be Great! Surviving to Thriving! Get ready to inflate in 2008! So many of you enjoyed my link last year to Sam Zell’s (the legendary real estate investor) annual Year End Gift (YEG) that I have attached a link to this years creation. This years is entitled “Confusion” and once again hits the nail on the head.

http://yegsz.com/Confusion/index.html

ENJOY!

Regards,

Don

Don Zech

CDC Commercial

December 4, 2007

RE: Monthly Letter

Dear Client;

The holiday season is a time to gather with family and friends and celebrate the many blessings in our lives. This is a time to reflect on the past year, to look at what we have accomplished in our lives both personally and professionally. At CDC Commercial, we are happy to say this year has been a success, and we have you to thank. We at CDC want to take the opportunity to extend our warmest wishes to you and your families during this holiday season. And to thank you for making us part of your world.

As in past years, in lieu of Christmas cards or gifts, we have always shared a Holiday Story that hopefully touches your heart. I hope you enjoy this years as much as we do.

Despite the headlines and doom and gloom, I thought in this season of glad tidings, I would share some of these news items of the last month.

• November 7^th – worker productivity rose in the 3^rd quarter – the largest rise in four years!

• October retail sales; Costco + 9.1%, Target + 4.4%, Walmart +1.1%.

• Shea Homes sold more than one home a day in October (despite the fires!) and closed escrow on 24 homes that same month!

• According to the World Economic Forum, the United States is once again the world’s most competitive economy.

• GDP for the last quarter came in at 3.9%, well above estimates.

Since it is the season of gift giving I thought I would give you a few:

1. Well actually the IRS is giving you this one. If you are in a 1031 exchange between October 21, 2007 and January 31, 2008 (and live in one of the fire affected communities), your identification (45 days) and closing (180 days) are extended for an additional 120 days. (Revenue Procedure 2007-56, Section 17)

2. Well this one is actually from Moody’s and MIT. You are going to hear more about this in the future but there is now an index that tracks the state of Commercial Real Estate. You can link to it at our website; www.cdccommercial.com/MoodysIndex.

3. Ever driving down the road and wanted to jot down a note for later? Well, check this out; www.jott.com. You can put their number in your cell phone and call anytime and leave yourself a message, which they transcribe and automatically email to you (or someone else you pre-designate) – and it’s free!. Don’t tell my wife; she’ll be dictating “honey do” projects from the road!

4. Lastly, this is a sneaky gift because you receive when you give to others. When you are making out your holiday card list this year, also include one or two to the following:

A recovering American Soldier

c/o Walter Reed Army Medical Center

6900 Georgia Ave. NW

Washington, DC 20307-5001

Have you ever walked into an office and felt that elegant confidence that is produced by a team of individuals who enjoy their occupation, excel at their tasks and most importantly thrive within an industry and their community? I know I feel that way about our team at CDC Commercial. I especially want to take this moment to thank Nancy, who will be celebrating her 10-year anniversary with CDC this month.

As in past years there will not be a monthly letter the first of January. But at the end of January you will receive our monthly letter along with our annual Gold Report – our annual forecast.

Hopefully you will take some time from the hustle and bustle of the season to think about what the real meaning of the holidays is and spend time with the ones you love, celebrating family, friends and life. It’s all too easy to spend this time of year worrying about whether you got the right gifts for the right people or which New Year’s Eve party to attend because you don’t want to offend anyone. The true gifts come from within, and which party, if any, you attend on New Year’s Eve should be because you want to go.

As we begin to think about our New Year’s resolutions, there’s one that should be on everyone’s list. Put family and friends first. Because, when it’s all said and done, there isn’t much else in this world that matters.

Happy holidays and best wishes for a happy and healthy new year.

Regards,

Don

Don Zech

CDC Commercial

Real Estate Services

~ Christmas Story ~

A farmer had some Christmas puppies he needed to sell. He painted a sign advertising the four pups and set about nailing it to a post on the edge of his yard. As he was driving the last nail into the post, he felt a tug on his overalls. He looked down into the eyes of a little boy.

“Mister,” he said, “I want to buy one of your puppies.”

“Well,” said the farmer, as he rubbed the sweat off the back of his neck, “These puppies come from fine parents and cost a good deal of money.”

The boy dropped his head for a moment. Then reaching deep into his pocket, he pulled out a handful of change and held it up to the farmer.

“I’ve got thirty-nine cents. Is that enough to take a look?”

“Sure,” said the farmer. And with that he let out a whistle. “Here, Dolly!” he called.

Out from the doghouse and down the ramp ran Dolly followed by four little balls of fur.

The little boy pressed his face against the chain link fence. His eyes danced with delight.

As the dogs made their way to the fence, the little boy noticed something else stirring inside the doghouse.

Slowly another little ball appeared; this one noticeably smaller. Down the ramp it slid. Then in a somewhat awkward manner, the little pup began hobbling toward the others, doing its best to catch up…

“I want that one,” the little boy said, pointing to the runt. The farmer knelt down at the boy’s side and said, “Son, you don’t want that puppy. He will never be able to run and play with you like these other dogs would.”

With that the little boy stepped back from the fence, reached down, and began rolling up one leg of his trousers. In doing so he revealed a steel brace running down both sides of his leg attaching itself to a specially made shoe.

Looking back up at the farmer, he said, “You see, sir, I don’t run too well myself, and he will need someone who understands.”

With tears in his eyes, the farmer reached down and picked up the little pup. Holding it carefully he handed it to the little boy.

“How much?” asked the little boy.

“No charge,” answered the farmer. “There’s no charge for love.”

The world is full of people who need someone who understands.

Happy Holidays from CDC Commercial.

Don Nancy Rob Lisa Jana

October 30, 2007

RE: Monthly Letter

Dear Don;

I hope and pray that this letter finds you and your family safe and your property unharmed. We have all been witness to some of the worst ravages that mother nature can dole out and some of the best acts that human nature can offer. I am glad to report that although the fire got within 400 yards of my house, we sustained no damage. Nancy and Rob were also left unscathed. I wish I could say the same for some of our friends, neighbors and clients. What amazed me was the relative order and organization that government and media took. I loved how well the technology of reverse 911 worked (even though I didn't get a call). My heart warmed by the emails, calls and offers for shelter that we received from people and relatives that we only exchange Christmas cards with. I have to tell you it was surreal to drive through my neighborhood (yes I was one of those idiots with a hose in my hand that did not evacuate) and see smoldering fires, Nationa l Guardsmen carrying M-16's, see fire trucks parked in friends driveways and gardeners blowing debris from abandoned houses as the mailman delivered mail!

September 4, 2007

RE: Monthly Letter

Dear Clients;

It’s not whether the glass is half full or half empty; it’s whether it’s filling up or emptying out!

Dave Scott, the famous tri-athlete, went into the 1989 Japan Iron Man like this; His wife was due to have their first child any minute. His knee was hurting. He had gotten lost two days before the race and rode for five hours in what was supposed to be a short tune up. The night before the race he thought he wouldn’t finish, so he called the airline and moved up his flight. He pumped up his tires and left the spare and the pump behind. On race day, he took the lead 100 meters into the swim and went on to win, setting a world record at 8:01. When he picked up his bike the next day, he had a flat tire.

Feeling lousy, thinking about not doing a deal or postponing a meeting? Think of Dave Scott. You never know.

The bottomless pool of liquidity around the world is the business story of 2007. It has been driving everything: low borrowing rates, high stock prices, buybacks, hedge fund growth and the private equity boom. So here is the trillion-dollar question: Is the global cash glut mainly the result of the Federal Reserve’s loose monetary policy, or can it be explained by the rapidly rising prosperity around the world? The answer matters. If it is loose money causing the global surplus then we’re resting on thin ice. But if rising productivity, prosperity and profits have brought the glut, then we are on firm ground!

We continue to be in a stagflation economy (stagnation and inflation) but we may be moving to a “newspaper induced recession”. Foreclosure is a default of debt which is deflationary. Tighter underwriting is deflationary. Oil, food and raw materials have all skyrocketed – that’s inflationary. Rates are going to continue to jump around as markets try to adjust to the sub prime debacle and the Fed tries to walk a thin line. One thing I know for certain is that rates will go up, then come back down and then back up. I just can’t tell you when, how much or in what order!

How far will the current credit crunch reach? In some markets and products, it is an outright crisis. To have a credit crunch you need fear and uncertainty, and lenders are certainly feeling

that. However, as mentioned earlier in my letter, I think global productivity, global liquidity and the Fed will allow this ship to settle out and sail smoothly again.

Despite my rosy prognostications there will still be some blood to pay. When pension funds take losses, companies have to make it up or workers get smaller pensions. Insurance company losses translate into higher rates. And when mutual funds take losses, you’ll see it in your monthly statement.

Closer to home (you heard it here first), vacancy rose during the summer (you will read it in the papers in a few months). Most of it is still a fall out in real estate and construction related business. It’s no secret that millions of Americans pulled equity from their homes for years to finance cars, vacations and shopping trips. Thus far the cash registers have kept ringing in spite of the deflating housing bubble. I am afraid that there is still more fall out to come in the retail arena as tenants struggle with higher rent, higher energy costs, higher labor costs and now a fall off of business. While vacancies have crept upwards, landlords remain in a strong position. Large amounts of free rent, big TI allowances, and rent cuts are not on the table at this time. In fact rental rates continue to trend upwards.

August was surprisingly slow but in its final days it picked up strongly (probably why San Diego was the #1 destination in the U.S. for Labor Day! In these tumultuous times remember that; “time kills all deals.” We’ll be doing everything in our power to expedite leases and sales so that deals aren’t side-lined by shifts in the economy or inflammatory headlines.

If you haven’t already, call 1-800-466-4411. It’s Google’s new 411 service. It’s automated and the voice recognition is better than the human operators and best of all, it’s free (you can even have the info texted to you). If you think that is cool try 1-800-555-8355 (TellMe). Here you can get everything from stock quotes to weather all by voice request. It kind of turns your cell phone into a little robot or personal assistant!

Regards,

Don Zech

CDC Commercial

Real Estate Services

Three Strings Attached: The Strength of Recovery

Itzhak Perlman. An extraordinary violinist. An amazing virtuoso. He walks with the aid of two crutches, both legs braced as a result of procuring polio as a child, but with the touch of his bow on a string he ignites sheer brilliance at his fingertips. Here is a story I recently read about him.

One night he was performing at Lincoln Center in New York City. His audiences are used to his slow and painful entrance on stage, waiting with an inspired silence for him to play. On this occasion, after a few pristine bars, the unmistaken sound of a string snapping brought a hush over the concert hall. The audience sat in silence. They anticipated the sure need for him to replace the string.

He took a moment. The audience watched him carefully, expecting him to slowly and painfully leave the stage, replace the string and then return. Instead, he closed his eyes, and signaled for the orchestra. He picked up the piece where he had left off. With beauty, passion and power he continued to play with only three strings. With the last magnificent notes he brought the audience to a silent reverence followed by explosive applause.

When the audience quieted, he humbly stated, “You know, sometimes it is the artist’s task to find out how much music you can still make with what you have left.”

Know that we’re here for you day in and day out trying to make music for you no mater what the market or economy might throw us!

Team CDC Commercial

August 1, 2007

RE: MONTHLY LETTER

Dear

According to the UN, livestock is more responsible for global warming than all the cars in the world combined. Methane gas from cows causes 20 times more global warming than carbon dioxide. “That’s why my next cow is going to be a hybrid.” – Jay Leno

You know it seems if it weren’t for the housing and construction sectors, the economy would be looking pretty damn good! Remember last month I said things weren’t as bad as they appeared? I noticed that JP Morgan Chase upped its second quarter forecast from 2.5% to 4% (how are they off by nearly double?) The bad news to this is that we are unlikely to see a rate cut from the Fed anytime soon. Although you read about tame inflation numbers, food and energy inflation world wide is at 7%!

On June 26^th the yield on 10 year treasuries registered at 5.1% up nearly 50 basis points since February. Time to say goodbye to the lowest commercial mortgage rates in 40 years! This is slowing sales volume a bit and will force cap rates higher through the rest of the year. Bottom line, more deals will fall apart because investors won’t be able to get the financing they once could. It’s not just interest rates; it is tighter underwriting guidelines and higher debt service coverage ratios (DSCR). From our end we are prequalifying harder and requiring letters of prequalification from the buyer’s lender. (We prefer to get everybody educated early in the deal and not waste time!)

There is no doubt the housing market is going through a correction. How this correction unfolds will influence the course of our economy in the coming quarters. The stages of a housing correction are as follows:

1. Residential investment declines.
2. Construction employment is reduced.
3. Consumer spending weakens.

The reality is that all housing corrections have lead to a recession except 1951 (Korean War) and 1967 (Vietnam War) according to Edward Leamer of UCLA. Will the War on Terror make us the third exception?

I have always said pay attention to the unemployment numbers. (If people are working they are spending.) The County’s unemployment rate in June was 4.6% which is up from 4.2% for last June. The bigger concern is that job growth has ground to a halt. Looks like we’re treading water at this point.

The question now is not whether the glass is half empty or half full; it’s about whether it’s filling up or emptying out! On that front, I was thrilled to see that venture capital funding is up 40% in San Diego. Understand this is the core of job creation. For every one of these “core” or “driver” jobs 7 other jobs are created (services, construction, retail, etc……).

Lastly, my inbox, reading and several recent conferences have been dominated by the Green Building buzz and lowering ones carbon footprint. I have to be honest with you, I have pretty much turned the page or changed the channel on the subject. I just figured it is a big media/Al Gore production. However, I think it is now safe to say it is here to stay. I think now it is being driven more by economics than idealism. This is about more than growing grass on your roof. Some of it is simple. Direct your rain gutters to your landscape not the storm drain system.

In July, BOMA (Building Owners and Managers Association) has challenged its members to improve its energy efficiency. These efforts not only have environmental benefits but financial ones as well. Remember 15 years ago handicap accessibility wasn’t on construction drawings now it is part of the building code.

I’d really recommend attending a conference / seminar or reading up on the subject. It is here to stay and we’ll be dealing with it for many years to come.

Thank God for our country, for the freedom we have. May you be touched by the sun and the beautiful environment in which we live and work.

Have a Sun Diego day!.

Regard,

Don Zech

CDC Commercial

July 1, 2007

«AddressBlock»

RE: Monthly Letter

Dear «GreetingLine»

In July of 1776 the number of people living in the colonies was 2.5 million. This 4^th of July we will have surpassed the 300 million mark – now that is demographic growth!

As we hit the mid point of 2007, we continue to see a healthy yet funky market and economy. The University of San Diego (USD) index of leading indicators for San Diego is predicting a weakened San Diego economy through the end of the year, lead by slower job growth, higher unemployment and a continued slump in housing sales. Dr. Gin is predicting 8-9000 jobs but other economists are predicting 14-15,000 new jobs. Now here is the deal we gained 11,000 jobs since last May but construction and real estate lost 6900 jobs. So two steps forward, one step back – but we are still moving forward! The economy may be slowing but we should miss a recession. In fact based on my business activity (which has been a safe indicator of future up ticks) we are in for a strong 2^nd half despite what the economists say! If we are slowing, the pressure on interest rates will ease as inflation pressures ease. I’m betting the other way but hoping the Fed doesn’t have to raise rates any more to prove its point The fed held firm in June and I think will continue to do so through the end of the year unless forced otherwise by the bond market (see notes below).

There still should be much concern about the trickle down effect of the subprime fall out. It is not that the subprime market problem can’t be fixed, it is the potential that it could be a crack in the dam of the whole collateralized debt obligations (CDO) market that is the issue. The problem is that the subprime debacle is causing hedge funds to re-price their debt at the same time as interest rate rises are causing a re-pricing and these funds are reevaluating their secured assets. Suddenly, the emperor may discover he has no clothes (or at least not as many as he had). This could lead to a spike in rates and much tougher underwriting guidelines.

Demand for the purchase of commercial real estate remains very strong. However, the gap between buyer and seller expectations has lead to a 20% decline in sales velocity. The return, however, to more normalized conditions is good for the health of the overall market.

The tenant market is continuing to be squeezed. Vacancy factors remain at all time lows mostly below 5%. Rents are rising because of this and driven by owners who bought at low cap rates and now must raise rents to increase yields. In the meantime, tenants unable to cope with higher energy costs, higher labor costs and higher rents are struggling with raising prices or calling it quits.

Deal junkie that I am, I am glad to report we are 25% ahead of last year’s volumes (# of transactions done) but about equal on income (Good that we still making as much as last year – bad that we are working 25% harder to do it!). It still troubles me that with that activity we still have many spaces that don’t or haven’t moved. This goes back to the healthy yet funky market I have described. Suffice it to say our whole team is working long and hard on a daily basis to lease and/or sell your property. I like to say we are working 24 hours a day – just not in a row! The economy looks bright but bumpy.

I hope you enjoy the story this month as much as your 4^th of July holiday. We live in the best nation in the world and America’s Finest City.

Have a Sun Diego Day!

Regards,

Don Zech

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Charles Plumb was a U.S. Navy jet pilot in Vietnam. After 75 combat missions, his plane was destroyed by a surface-to-air missile. Plumb ejected and parachuted into enemy hands. He was captured and spent 6 years in a communist Vietnamese prison. He survived the ordeal and now lectures on lessons learned from that experience!

One day, when Plumb and his wife were sitting in a restaurant, a man at another table came up and said, “You’re Plumb! You flew jet fighters in Vietnam from the aircraft carrier Kitty Hawk. You were shot down!”

“How in the world did you know that?” asked Plumb.

“I packed your parachute,” the man replied. Plumb gasped in surprise and gratitude. The man pumped his hand and said, “I guess it worked!” Plumb assured him, “It sure did. If your chute hadn’t worked, I wouldn’t be here today.”

Plumb couldn’t sleep that night, thinking about that man. Plumb says, “I kept wondering what he had looked like in a Navy uniform: a white hat; a bib in the back; and bell-bottom trousers. I wonder how many times I might have seen him and not even said ‘Good morning, how are you?’ or anything because you see, I was a fighter pilot and he was just a sailor.” Plumb thought of the many hours the sailor spent at a

long wooden table in the bowels of the ship, carefully weaving the shrouds and folding the silks of each chute, holding in his hands each time the fate of someone he didn’t know.

Now, Plumb asks his audience, “Who is packing your parachute?” Everyone has someone who provides what they need to make it through the day. He also points out that he needed many kinds of parachutes when his plane was shot down over enemy territory – he needed his physical parachute, his mental parachute, his emotional parachute, and his spiritual parachute. He called on all these supports before reaching safety.

Sometimes in the daily challenges that life gives us, we miss what is really important. We may fail to say hello, please, or thank you, congratulate someone on something wonderful that has happened to them, give a compliment, or just do something nice for no reason. As you go through this week, this month, this year, recognize people who pack your parachutes.

As we enter the back half of the year, I am sending you this as my way of thanking you for your part in helping to pack our parachute.

Happy 4^th of July!

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