Is Valentine’s Day dead? California baby-making in downward spiral


Valentine’s Day means it’s time for the “the talk” involving California’s young adults.

No, not the birds and the bees. This is business news, so instead, we’ll discuss the demographic implications of folks in their prime child-bearing years producing fewer freshly minted Californians.

My trusty spreadsheet, filled with state Department of Finance population data, found 436,682 California births in the year ended July 1 — down 14,544 in 12 months. It’s the fifth consecutive decline and the 10th drop in 12 years. Last year’s births were 8% below the 2015-19 average of 477,000.

The economy’s pandemic plunge wasn’t a factor in these numbers. Remember, it typically takes nine months to produce a new family member, and the pandemic became a life-changing event in the spring of 2020.

A declining birthrate is a complex issue with a heavy dose of economic factors. You don’t need a spreadsheet to understand that financially stressed families can’t afford another mouth to feed. There are long-term considerations, too.

Many couples who once were considering children have delayed growing a family or aren’t interested at all. Some women have careers they don’t want to sacrifice, and professional childcare can be extremely expensive.

Demographics are also a key factor. An aging state population and fewer young adults moving to California mean the state isn’t replenishing its potential baby-makers.

No matter why fewer babies are made, the shortfall means broad economic challenges — and not just for folks in childcare industries.

For example, a shortage of wee ones muddles an otherwise favorable demographic trend for many businesses — a growing flock of young workers.

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Fewer children also put a new spin on big policy debates. How many homes does California really need? What will become of school facilities? Where should healthcare facilities be built? Do we need all these sports parks?

The birth slowdown is one of the key reasons California’s population growth is rapidly shrinking.

Now, you can argue whether population growth is good for society or ecology. But financially speaking, more people bring financial windfalls to most business owners.

California added only 21,224 more residents in the year ended July 1, the smallest percentage gain in state records dating to 1900. This weak growth was a 90% drop from the average 211,000 new Californians of the previous five years.

Not just California

The nation isn’t procreating like it once did.

My spreadsheet, looking at national trends from the Center for Disease Control, found the number of newborns rose in just one state between 2014 and 2019 (the latest figures available): Florida. The Sunshine State’s births increased by a mere 0.005%. Nationwide, total births fell 6%.

California births dropped 11% during these five years, by CDC math. It was the nation’s sixth-largest drop behind No. 1 Wyoming, down 15%, then Alaska, down 14%, Vermont, down 13%, and New Mexico and Illinois, down 12%.”

Having a baby also looks unpopular when you ponder the CDC’s “fertility rate” — the rate of births compared with the number of girls and women aged 15 to 44. This yardstick fell in every state in the 2014-19 period and was down 7% nationwide.

California’s fertility rate dipped 11%, the 13th largest decline among the states. Utah suffered the biggest drop of 17%. Next was Montana and Arizona, down 15%; Oregon down 14%; and Wyoming, down 12%.

Boom ahead?

All this quarantining leads to much speculation about a post-pandemic baby boom.

What else might couples be doing while spending all this lockdown time together? My guess is they’ll do anything but create more hassles … I mean, babies.

Let’s face it. Working at home or schooling children remotely doesn’t spark many amorous flames. And you can imagine that financial anxiety created by the pandemic’s recession has dulled lustful intentions.

History tells us California births took their biggest tumbles this century in 2008 and 2009 — declines averaging 25,000 a year. That’s when the Great Recession was inflicting massive economic pain. Declines in U.S. births peaked in 2009-10, losses averaging 124,000 a year. In 2019, baby-making dipped by 44,172.

Never fear, St. Valentine. Romance isn’t dead yet. Folks just need a little time to get in the mood after a bout of economic dysfunction.

My spreadsheet says California’s biggest increase in births, post-Great Recession, came in 2012. Nationally, it was 2014.

So bet on a high-flying Valentine’s Day and post-pandemic baby boom to come — in a few years.

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Can 2020 get ANY crazier? Here’s a commercial real estate metaphor

Commercial real estate was business as usual with no recessionary storm clouds massing on the horizon. The drought was behind us, too, as we continued a relatively wet winter. Local sports teams were finishing strong. What was ahead? The opening of Marvel Land – Avenger’s Campus at Disney’s California Adventure. Summer vacations, kids starting their spring semesters, anticipating graduations. June weddings. Breaks in the work schedule to celebrate birthdays, anniversaries and national holidays.

Yep, that was our view of things to come back in January 2020.

But, in the ensuing gestation period, 2020 has eclipsed any year in recorded history for weirdness! Pandemic, 208,000 deaths, worst economic recession since the 1930s, upheaval in the streets, absence of civility in our public discourse, hurricanes, wildfires …

And just as we believed we’ve seen it all … BOOM! Our president and first lady and a host of their close encounters have been stricken by the hidden enemy – COVID-19. I’m not certain 2020 can get any crazier!

So, is 2020 somehow metaphorical for commercial real estate transactions? Maybe! Indulge me while I develop the conversation a bit more.

An unexpected turn

Purchasing commercial real estate for your business remains a great way to build legacy wealth for your family. I speak with many closely-held company owners who’ve created an entity to own their acquisition and then leased the purchased real estate to their corporate operation.

Some boast their locations are now worth more than the companies they host. Occasionally, I encounter the opposite – akin to the start of 2020 and what followed.

Take, for instance, the aerospace manufacturing group that tooled parts for jetliners. Things were peachy and operating from an owned location. Revenue was growing; the facility met their needs; commercial real estate was appreciating; many were employed; life was grand — until it wasn’t.

You see, although the owner of the business and real estate were similar, they were not a mirror image. Upon the untimely death of the founding patriarch, all manner of chaos ensued. Unbeknownst to the business operator – the son – title to their company site had been deeded to seven factions with disparate goals. Some wanted money, others needed money, while still others realized absent the building – where would operations continue?

Things got very ugly.

I’m pleased to report the aerospace firm is happily domiciled in a leased location and the building was sold. Oh, and that 2020 will end happily as well.

It really boils down to risk. Our president contracted the virus. Many test positive yet are asymptomatic. Was it a blatant disregard of safety protocols – masks, distancing, sanitizing – by a purported germophobe or simply a random occurrence? The arguments on either side are as numerous as viruses in a petri dish.

Suffice it to say – risks were taken. It may end badly. We pray not. Are there ways to minimize risk? Of course! Stay home, follow the guidelines, avoid human contact. Done. Sadly, many adopt a riskier approach – much like driving in and out of the fast lane on the 405 and exceeding the speed limit all while eschewing a safety belt – you’re increasing the odds of a catastrophic outcome.

How to avoid risk

Buy a building – at a safe social distance, no less – at cheaper than market comparable sales – for cash – no loans.

Plan to occupy it with your business. If you don’t own a company that can pay you rent – forget about buying commercial real estate. If you divest yourself of the company – sell the building as well.

Pay the taxes. Bank the profit. Done!

I’ve just described 3% of commercial real estate owners. The remaining 97% tend to take a bit more risk – albeit for a potentially greater return. Tantamount to playing Twister in a tsunami, the risk doesn’t have to affect life, limb or the pursuit of happiness – although some invest that way.

Examples of “going without a mask” in commercial real estate might be: borrowing more than the property is worth; buying an unsustainable income stream; investing in a special purpose building. You may end up just fine. Then again, you may have to quarantine for 14 days and hope for the best.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104.

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Coronavirus twists Southern California housing: Slowest sales, highest prices

Southern California house hunters, challenged by a pandemic, bought the fewest homes in any June on record while record-low mortgage rates helped push the median selling price to an all-time high.

DQ News/CoreLogic reported on Wednesday, July 22 that buyers closed purchases of 17,678 residences — existing and newly built — in June in the six-county region. That’s down 15% in a year as sales fell across SoCal. It was the slowest-selling June in a database that dates to 1988 and was the third consecutive monthly record low for local homebuying.

Stubbornly high unemployment, due to “stay at home” orders designed to limit the coronavirus’ spread, has been a drag on the entire economy, including the home-selling businesses. In addition, many homeowners have chosen not to sell — perhaps fearful of the virus or the fate of their finances. Overall, that cut house hunter’s choices, depressed sales and helped nudge up prices.

Here are five things we learned about the local housing market in June, when homebuying and prices went in opposite directions …

1. June’s balloon

As business limitations were loosened throughout the spring  —  and the real estate industry better adapted to pandemic restrictions — June’s sales improved 44% from May.

That’s the largest May-to-June gain on record and the eighth-largest one-month jump for any month since 1988.

Recent pending sales stats from Zillow show newly opened escrows in Los Angeles and Orange counties were close to year-ago levels as of July 11, with the Inland Empire up 10%. This suggests closings could be back to normal levels later this summer.

“I would argue that we’ve already seen plenty of evidence of a rebound in closed sales consistent with the uptick in pending sales since mid-April,” said Jordan Levine, the California Association of Realtors’ deputy chief economist. “We still have a long way to go to reach full recovery, but the market certainly clawed back a significant chunk of April and May’s lost ground.”

2. Record prices

June’s successful homebuyer paid more to win what’s been a rare find: Homes to buy.

In mid-July, for example, the number of existing homes listed for sale was down 27% in a year in Los Angeles and Orange counties and down 26% in Riverside and San Bernardino counties, according to Zillow.

That short supply was a key reason why the region’s median selling price hit an all-time high of $555,500 in June, according to DQ News — up 2.9% over 12 months. That broke March’s all-time high of $550,000 as record highs were also set in Los Angeles, Orange and San Diego counties.

“It’s likely true that unemployment has knocked some would-be buyers out of the running, but home shoppers are combing over a very limited set of options,” said Jeff Tucker, a Zillow economist.

Do not forget that cheap money is helping the housing market. Mortgage rates, pushed lower in an attempt to stimulate a depressed economy, have fallen from an average 3.7% in December to 3.2% in June.

And this month the 30-year rate fell below 3% for the first time.

3. Builders benefit

Local builders fared relatively well in June, selling 1,692 new homes, down just 7% in a year. Builders got a $558,000 median price — essentially flat in a year.

Having a supply of unsold new home inventory boosted builders’ share of sales in the region to 9.6% vs. 8.7% a year earlier.

Meanwhile, the resale market for existing homes suffered.

Sales of single-family houses totaled 12,472, down 15% in a year. The median selling price was $590,000 — a 3.7% increase over 12 months. Condos fared worse with 3,514 sales, down 18% over 12 months. Median? $470,000 — a 2.8% increase in a year.

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4. Coastal challenge

The sales slump was decidedly deeper by the coast where prices tend to be higher.

Los Angeles County was hit hardest with 5,063 sales, down 24.3% over 12 months. The L.A.median price was $643,000 — up 4% in a year. Ventura County’s 781 sales were down 23.9%. The median of $600,000 — was up 3.5%. Orange County’s 2,447 sales were down 22% as the median price rose 4% to $765,000.

Breaking that trend was San Diego County. Its 3,557 sales were off only 2.4%, the region’s smallest dip, as its median of $600,250 was up 1.7%.

Prices rose sharply in the Inland Empire, the region’s housing bargain.

San Bernardino County had the second-smallest homebuying decline: 2,501 sales, down 3%. It’s SoCal’s cheapest spot with a median of $365,000 — after a 7.4% increase. Riverside County had 3,329 sales, down 12%. Its median of $430,000 — was up 7.8%.

5. Resurgent doubt

Acting fast seems to be common advice in a summertime market with limited choices and folks looking the cash in on cheap mortgages.

As of July, an existing L.A.-O.C. home went into escrow after just 19 days after listing – nine days faster than the same time last year. In the Inland Empire, it took 21 days — 11 days faster than the same time last year.

But the virus still has its say on the economy, and a recent surge in cases, hospitalizations and deaths — and the state’s ensuing U-turn on business reopenings — leaves room for doubt.

“There is certainly concern among some of the potential home buyers about the outcome of the COVID-19 crisis, however there still remains a solid buyer demand which is reflected in the further push of home prices,” said Selma Hepp, deputy chief economist at CoreLogic. Her firm recently forecast what would be the first drop in local home prices in eight years.

“Resurgence of the pandemic in the Southern California region will likely put a damper on future demand and will cause further uncertainty among buyers,” she said.

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Key COVID-19 legislation for businesses and people

In response to the COVID-19 pandemic, the federal government passed three phases of legislation and a slew of administrative guidance.

Phase 1 primarily provides emergency funding to various federal agencies. But provisions in Phase 2 — known as the Families First Coronavirus Response Act, or FFCRA — and Phase 3 — the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act — benefit businesses and individuals.

Here are key provisions of the FFCRA and CARES Act.

Expansion of the Family Medical Leave Act: Generally and until Dec. 31, employees working for an employer with less than 500 employees for at least 30 calendar days are eligible for additional FMLA leave if he or she cannot work because he or she is required to care for a child due to certain COVID-19 related circumstances. The additional FMLA leave period is up to 10 weeks.

Emergency paid sick leave: Until Dec. 31, employers with less than 500 employees are generally required to provide up to 10-days — or 80 hours — of paid emergency sick leave if an employee cannot work due to certain COVID-19 related circumstances.

Circumstances include being subject to a government quarantine order and caring for a child because the child’s child care provider is unavailable due to COVID-19 precautions.

Tax credits for businesses providing expanded paid family leave and paid emergency sick leave: Employers required to make expanded FMLA or emergency sick leave payments are generally entitled to a refundable credit against the employer portion of Social Security taxes for such payments.

Employers are to deduct the credit they are entitled to from the amounts withheld from employees that would normally be deposited with the IRS.

Delayed payment of employer payroll taxes: All employers may defer the payment of their share of payroll taxes otherwise required to be deposited from March 27 until Dec. 31.

To avoid penalties, half of the deferred amounts must be paid by Dec. 31, 2021, and the remainder by Dec. 31, 2022.

Individual tax credit for 2020: For 2020, eligible individuals are allowed a refundable income tax credit of up to $1,200 (or $2,400 for those filing jointly), plus $500 for each qualifying child for the child tax credit.

Those who would have qualified as eligible individuals in 2019 are entitled to an automatic advance refund equal to the amount of the credit that would have been allowed had it been in effect in 2019.

Waiver of an additional 10% tax for COVID-19-related retirement plan distributions: Employers may amend retirement plans to allow employees affected by COVID-19 to withdraw up to the lesser of the plan balance or $100,000 during 2020 without incurring the additional 10% tax normally imposed on withdrawals by those under the age 59 ½.

Employees that repay the amount to the plan within three years will not have to recognize the withdrawn amount for income tax purposes.

Loan flexibility for qualified retirement plans: Before Sept. 23, qualified employer plans may be amended to allow for loans of up to the lesser of the employee’s vested accrued benefit or $100,000 for those affected by COVID-19.

Participants affected by COVID-19 with outstanding loans may be allowed to defer payments due between March 27 and Dec. 31, for up to 1 year.

Waiver of required minimum distributions: Participants in defined contribution plans—like a 401(k)—and IRA owners are required to take minimum distributions each year after reaching a certain age (70 ½ or 72 depending on the distribution date).

These required minimum distributions are waived for 2020. Participants and IRA owners who took required minimum distributions in 2020 before the CARES Act was enacted may rollover such amounts or repay them until Aug. 31.

These are only some of the provisions in the FFCRA and CARES Act that benefit individuals and businesses. State and local laws and orders also provide additional relief. Finally, businesses and individuals should be prepared for evolving guidance as the pandemic continues.

Allison M. De Tal is an attorney in Best Best & Krieger LLP’s Business practice group who focuses on tax and employee benefit matters. She can be reached at

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Market peak? Southern California homebuying drops, 1st dip in 11 weeks

Southern California house hunters put 3% fewer homes into escrow in the most recent week, the first homebuying drop in 11 weeks.

Zillow’s weekly report on activity from brokers’ listing services in Los Angeles, Orange, Riverside and San Bernardino counties shows the housing market’s first slip amid a rebound from economic turmoil created by the coronavirus pandemic.

With 3,647 existing homes put into escrow in the week ended July 4, the buying pace is 1% above a year ago. Bear in mind, the holiday weekend could be a factor in the cool-off.

Finding something to buy is a challenge. Southern California owners listed 4,592 homes for sale in the week — up 2% vs. the previous week but down 18% in a year. That put total inventory at 28,068 — down 1% vs. the previous week and down 29% in a year.

Record low mortgage rates have put house hunters in a buying mood since early April. But the durability of an employment rebound is now in question. A recent spike in COVID-19 infections has forced a slowdown, if not reversal, of some business reopenings.

This economic uncertainty led CoreLogic to forecast a drop in Southern California home prices. The data tracker predicts Los Angeles County prices will drop 6.3%, Orange County 5.2%, and the Inland Empire 2.4% in the coming 12 months.

Here’s how Zillow’s July 4 data broke down in Los Angeles and Orange counties …

New escrows: 2,100 contracts signed — down 4% in a week; up 14% in a month; down 6% over 12 months.

New listings: 2,821 over seven days — down 1% vs. the previous week; down 2% in a month; down 16% in a year.

Total inventory: 17,450 homes on the market — up 0.2% in a week; up 3% in a month; down 26% over 12 months.

Median list price: $923,178 — up 1% vs. the previous week; up 4% in a month; up 9% in a year.

Selling speed: 19 days, median time for homes entering escrow from listing, 8 days faster than this time last year.

In the Inland Empire …

New escrows: 1,547 — down 1% in a week; down 2% in a month; up 11% over 12 months.

New listings: 1,771 — up 7% vs. the previous week; down 6% in a month; down 20% in a year.

Total inventory: 10,618 — down 3% in a week; down 10% in a month; down 34% over 12 months.

Median list price: $446,760 — up 1% vs. the previous week; up 3% in a month; up 5% in a year.

Selling speed: 21 days, median time for homes entering escrow from listing, 11 days faster than this time last year.

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Statewide …

New escrows: 8,214 — down 0.3% in a week; up 7% in a month; up 14% over 12 months.

New listings: 10,364 — up 1% vs. the previous week; down 10% in a month; down 20% in a year.

Total inventory: 46,847 — down 3% in a week; down 11% in a month; down 41% over 12 months.

Median list price: $697,571 — up 1% vs. the previous week; up 8% in a month; up 16% in a year.

Nationally …

New escrows: 82,488 — down 4% in a week; down 0.04% in a month; up 13% over 12 months.

New listings: 124,516 — down 2% vs. the previous week; down 8% in a month; down 27% in a year.

Total inventory: 1,097,755 — down 1% in a week; down 2% in a month; down 22% over 12 months.

Median list price: $338,760 — up 0.5% vs. the previous week; up 3% in a month; up 4% in a year.

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Southern California pending home sales rise 8th straight week, just 2% below 2019

Southern California house hunters put 5% more homes into escrow in the most recent week — the eighth consecutive weekly increase — as the buying pace runs 2% below a year ago.

My trusty spreadsheet’s compilation of Zillow’s weekly report on activity from brokers’ listing services in Los Angeles, Orange, Riverside and San Bernardino counties shows the local housing market rebounding from economic turmoil created by stay at home orders designed to slow a pandemic’s spread.

With 3,605 existing homes put into escrow in the week ended June 13, pending sales are up 172 in a week but down 78 in a year.

Options for house hunters remain slim. Southern California owners listed 4,452 homes for sale in the week — down 8.3% vs. the previous week and down 15.1% in a year. That put total inventory at 28,778 — up 0.2% vs. the previous week but down 26% in a year.

Fewer restrictions on businesses, including home sales, plus low mortgage rates are putting owners and house hunters in a selling mood. But even after a significant run-up of late, some slices of the market still trail year-ago levels.


How the data breaks down in Los Angeles and Orange counties …

New escrows: 1,974 contracts signed — up 7.6% in a week; up 34% in a month; down 10.9% over 12 months.

New listings: 2,793 over seven days — down 3.5% vs. the previous week; up 13.9% in a month; down 12.5% in a year.

Total inventory: 17,156 homes on the market — up 1.659% in a week; up 10.4% in a month; down 25.7% over 12 months.

Median list price: $890,800 — up 0.9% vs. the previous week; up 3.6% in a month; up 6.5% in a year.

In the Inland Empire …

New escrows: 1,631 — up 2.1% in a week; up 35% in a month; up 11.1% over 12 months.

New listings: 1,659 — down 15.3% vs. the previous week; up 7.4% in a month; down 19.1% in a year.

Total inventory: 11,622 — down 1.9% in a week; down 3.5% in a month; down 27% over 12 months.

Median list price: $435,826 — up 0.8% vs. the previous week; up 2.2% in a month; up 3.1% in a year.

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Statewide …

New escrows: 8,112 — up 4.5% in a week; up 36% in a month; up 6.9% over 12 months.

New listings: 10,335 — down 11% vs. the previous week; up 11.3% in a month; down 20% in a year.

Total inventory: 51,293 — down 1.6% in a week; down 5.5% in a month; down 33% over 12 months.


Median list price: $661,241 — up 1.8% vs. the previous week; up 8.4% in a month; up 10.3% in a year.

Nationally …

New escrows: 85,778 — up 2.8% in a week; up 17.7% in a month; up 13.6% over 12 months.

New listings: 132,790 — down 3.8% vs. the previous week; up 13.9% in a month; down 16.6% in a year.

Total inventory: 1,120,998 — down 0.4% in a week; up 0.1% in a month; down 17.1% over 12 months.

Median list price: $332,680 — up 0.8% vs. the previous week; up 3% in a month; up 2.5% in a year.

Remember, pending sales must get through the escrow process. May’s data on closed sales from DQ News shows Southern California homebuyers bought about half as many homes in May as they did a year ago.

A total of 12,271 new and existing homes changed hands in the six-county region last month, the lowest number for a May and the third-lowest for any month in DQ News’ 32 years of tracking the market.

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South Coast Plaza reopens Monday, June 1 with most amenities shut

  • The carousel at South Coast Plaza in Costa Mesa will remain closed even as the retail center reopens June 1. (Photo by Drew A. Kelley, Contributing Photographer)

  • South Coast Plaza in Costa Mesa is void of customers after a rise in COVID-19 cases on Monday, March 16, 2020. (Photo by Drew A. Kelley, Contributing Photographer)

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  • South Coast Plaza in Costa Mesa is void of customers after a rise in COVID-19 cases on Monday, March 16, 2020. (Photo by Drew A. Kelley, Contributing Photographer)

  • South Coast Plaza in Costa Mesa lacks customers after a rise in COVID-19 cases on Monday, March 16, 2020. (Photo by Drew A. Kelley, Contributing Photographer)



The giant South Coast Plaza retail center will reopen Monday, June 1 with limited hours and many of its amenities sidelined to ease shoppers’ concerns about the novel coronavirus.

The Costa Mesa center quietly announced details of the reopening on its webpage late Thursday, May 28. California’s easing of stay-at-home orders now allows indoor malls to open. The mall closed March 16 after learning a store employee had contracted the virus.

“The health and safety of everyone in the shopping center is our top priority,” the South Coast Plaza’s website states.

The center’s plan gives shoppers a preview of what mall life could be like in the pandemic era.

Operating hours have been shortened, beginning at 11 a.m. and closing at 7 pm, Monday through Saturday, and noon to 7 p.m. on Sundays.

Customers are advised to check individual shops and restaurants to see which ones would be open. Many indoor malls have reopened their shopping halls in the past week, but many merchants were not yet ready for business.

Visitors to South Coast Plaza should bring a face covering or mask. It’s required in the parking lots, to enter the mall and in stores. Costa Mesa and the county both require masks at most indoor facilities open to the public. The mall will offer free masks to customers who need one.

How South Coast Plaza handles its reopening will be carefully watched in the shopping center industry. The mall, which caters to high-end shoppers, is known to be a cutting-edge provider of customer service.

For example, South Coast Plaza’s reopening notice cited a new “state-of-the-art air treatment system” and intensified cleaning efforts, especially in high-touch areas. Hand sanitizer stations are placed in high traffic areas, and mall personnel will help manage social distancing along with signage encouraging visitors to keep 6-feet apart.

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Services such as valet parking and holding packages are shut, but the SCP2GO curbside pickup service remains active. Many common areas where the public gathered are closed, including the popular carousels.

The mall reopens in a tough environment for shopping centers. The pandemic has spooked shoppers — skittish about spending with record-high unemployment — and shattered the finances of many merchants — the folks who pay mall owners’ rents.

Real estate analysts at Green Street Advisors estimated mall operators nationwide collected about 25% of the rent they previously got and “collectability of unpaid rent will be tough.” That’s a key reason why the typical mall’s value has been cut by 25% this year.

It may not get better soon, Green Street wrote, as “retailer rent-paying ability could be impaired for years following this crisis.”

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How will COVID-19 affect commercial real estate values?

As California’s stay-at-home order is slowly lifted, our economic activity – placed into a self-induced coma – is also emerging from the ether. The most common question we hear these days is “what is my building worth?”

As recently mentioned in this space, no one really knows. For an investor value depends on the capitalized net income of rents. An occupant? The price of utility with which an occupant’s operation relies.

In the former, how will rents be impacted and at what return percentage will the market place settle? Pre-COVID found yield requirements in the 4.5-5% range. Now it’s anybody’s guess. In the latter? Will business failures cause a greater supply of functional locations from which to transact?

Today, I will take a deeper dive – anecdotally – into where commercial real estate values may be headed. Spoiler alert. In this columnist’s opinion, don’t look up.

Investors – capitalized net income: Those who rely on rents generated from commercial real estate approach value differently than residents of their business locations.

Let’s use this simple example. If annual net rents are $12 and the market return for this income is 5% – the resulting price per square foot is $240 – $12 divided by .05. As you can gather, a change in rents can skew the net income.

If returns are no longer 5% but hop to 6.5%, there’s a decline in the results. Again, annual net rents dropping to $10 with a 6.5% return yields a capitalized value of $153 per square foot. Wow! That is a precipitous fall.

In reality, the analysis is a bit more complex as things such as length of the lease, credit of the tenant and sustainability of the income are considered.

But simply a decline in rent or an increase in the market return spells doom for the worth of commercial real estate.

A couple of weeks ago, an investor friend of mine shared with me a conversation he had with a tenant. Approaching a lease renewal pre-virus he and his occupant were discussing a rate of $1.10 per square foot or $13.20 per year. Unable to reach agreement, they hit pause as the virus overtook our society. Eventually, they settled at 90 cents per square foot.

Simply waiting 45 days saved the tenant 20 cents per square foot. As the investor will not be selling – thus the decline in value will not be realized – he will nonetheless receive significantly less income. This illustrates how rents may adjust in the weeks ahead.

Additionally, if a vacancy is marketed and takers are few. an owner might sharpen his pencil to lease the space. Yep! Another data point for rent reduction. As these new comps filter through our industry, rates will reset.

Owner-occupants – utility: Most who own and occupy commercial real estate with their business don’t speak the foreign language of capitalized net income.

You see, the value they place on commercial real estate relies more on their use of the location and the corresponding payment for that utility. Consequently, if a cheap building has crappy loading, insufficient power or is miles from the freeway very few suitors will surface making it worthless to most occupants.

Making, shipping or servicing goods carries a profit structure independent of the buildin’gs worth. Sure, real estate has its place in the cost structure of said products, but ultimately whether that expense is a rent check to a landlord or debt service to a lender is immaterial. The ordinary business expense is the same.

I know, I know. There are infinite tax benefits to paying yourself rent vs. a landlord but that’s a conversation for another column.

Typically, if space is needed, the local inventory of available buildings will be scanned, toured and analyzed. Culled will be those not fitting the amenity requirements.

Considered? What rent will be paid if leased vs. what will a mortgage payment harbor. Simply, value for an occupant is largely determined by the number of avails that correspond with the needs.

Corresponding interest rates from which a location may be financed? Sure! Low rates can bridge the divide between the price to rent vs own. But, ultimately the location MUST have the goodies.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104.

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Tenants advocates, landlord groups both say coronavirus eviction ban falls short

In the week after Gov. Gavin Newsom issued a statewide ban on evicting tenants unable to pay their rent because of the coronavirus outbreak, complaints surfaced from tenants and landlord advocates alike who say the executive order leaves both unprotected.

Tenants rights advocates complained that while the governor’s order forbids the ouster of renters affected by the pandemic for 60 days, it doesn’t stop landlords from starting the process by filing new eviction cases in court.

During an online news conference on Wednesday, April 1, two state lawmakers and legal aid workers expressed concern there would be a wave of evictions come June because tenants will be unable to pay their back rent as required.

“The last thing we need is a wave of mass evictions during this pandemic or immediately after the state of emergency ends,” said state Sen. Scott Wiener, D–San Francisco, chair of the Senate Housing Committee. “Right now, millions of Californians have effectively no protection from eviction.”

Meanwhile, the head of the Apartment Association of Greater Los Angeles expressed concerns that some small landlords will be unable to pay their mortgages and bills if their tenants stop paying rent. He called for government assistance to subsidize tenants who can’t make their payments.

“Many see these eviction moratoriums as carte blanche for not paying rent for any reason,” said Daniel Yukelson, the apartment association’s executive director. “While nobody wants to see anyone that is truly impacted by the virus put out on the streets, the entire burden for housing people in our communities cannot merely be forced upon the backs of private citizens.”

Newsom signed an executive order March 27 banning residential evictions in California through May 31 if tenants are unable to pay their rent because they or a family member has COVID-19 or if they lost income because of the outbreak.

Tenants must notify their landlord in writing within seven days of the due date and must retain documentation showing they have suffered a coronavirus-related economic hardship. The tenant also remains obligated to repay the full rent “in a timely manner” and can still face eviction after the moratorium is lifted.

At least 38 city and county governments in Los Angeles, Orange, Riverside and San Bernardino counties have adopted their own tenant protection measures, according to the California Apartment Association, some of which are more restrictive than the statewide mandate.

For example, the cities of Los Angeles, Pasadena, Anaheim and Santa Ana prohibit late fees for failing to pay rent during the pandemic. San Bernardino and Santa Ana give tenants six months to repay back rent.

The statewide moratorium does not override those measures, but applies in more than 400 California jurisdictions without eviction moratoriums of their own.

That leaves millions of renters unprotected, said Brian Augusta, an attorney with the California Rural Legal Assistance Foundation during Wednesday’s news conference.

If tenants can’t pay their rent due to COVID-19, landlords still can file an eviction case in their local courthouse (if it’s still open), and tenants are required to respond within five days, Augusta said. Some judges may issue a default judgment against tenants who are unaware that they need to respond.

The protections for renters under the governor’s order aren’t as strong as protections for California homeowners, who get a 90-day breather if they can’t pay their mortgages.

“The governor did something for homeowners who have a mortgage payment,” Augusta said. “That is not the case for renters. Renters have to pay their rent under the governor’s order. … If you don’t pay it, there will be an eviction. The only question is when.”

Newport Beach real estate attorney J. Kyle Janecek disputed part of Augusta’s argument, saying tenants would have 65 days, not five, to respond to an eviction filing.

“The most essential way that the order affects the eviction process is by providing qualifying tenants an additional 60 days to respond to a complaint for eviction,“ Janecek, an associate of Newmeyer and Dillion LLP, said in an online post.

Nonetheless, Janecek said the governor’s moratorium is “not a perfect solution.”

“Right now, it seems to be pushing the problems down the road past June due to the current court delays and inevitable backlog,” he said. “On its face, the governor’s order alone does not protect renters with lost income, and will require more targeted action.”

Wiener said he is co-sponsoring a bill that would create a structure for renters to gradually repay their rent overtime “so renters are not hit with a huge back-rent bill.” However, the state Legislature isn’t due back in session until April 13, at the soonest.

Meanwhile, Los Angeles apartment association director Yukelson is calling for rent vouchers and other subsidies to ensure citizens can continue to pay for housing and other essential needs without bankrupting their landlords.

Some national leaders say landlords who are unable to pay their mortgage because their tenants aren’t paying rent likely will get “forbearance“ from their lenders.

But Yukelson said that may not be enough to help all landlords, some of whom may experience financial turmoil or health impacts from COVID-19 themselves. Many small landlords and retirees depend on their rental property income.

“While some may be able to avail themselves of mortgage relief or small business loans, if housing providers are ultimately never able to collect deferred rent, they may never catch up,” Yukelson said. “As a result, mortgage relief is nothing more then kicking the mortgage default and personal bankruptcy can down the road.”

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Tips to handle coronavirus volatility in the market, at home

With the emergence of the coronavirus, we find ourselves in a global pandemic of proportions that, in our lifetime, we have only watched in movies.

Long forgotten by most, it has been 102 years since the Spanish flu of 1918. It was the deadliest flu in modern history, infecting more than a third of the global population at the time.

While we hope the coronavirus impact will never reach the extremes of the Spanish flu, the disruption is changing our daily routines. How do we manage through this distraction?

Stay focused

Our daily focus should not change because this disruption is changing our normal routines. Families find themselves at home together with children learning in a virtual classroom and the parents working remotely. This change is unsettling, filling us with anxiety, fear, and a variety of other emotions.

To minimize the distractions in your day, continue to closely follow the same schedule you had in place before this all began. Make lists daily as a reminder of the tasks you need to accomplish to stay on track.

Implement changes that offer stability in your daily life. For example, designate specific workspaces for you and your family members, take breaks and eat lunch together at the same time.

Stay prepared

One takeaway from the coronavirus pandemic is to plan and be prepared for the next disruption. This is a reminder of why it is important to keep at least six months of cash reserves in your bank account.

Many people have been laid off for a minimum of two weeks, some employees have lost their jobs and many small businesses may permanently close. The purpose of having a cash reserve on hand is to have the ability to access money in a financial crisis without incurring additional debt or selling out or your investments or retirement account when the market is down.

If you are not prepared financially for this pandemic, your primary focus going forward should be on building an emergency cash reserve.

Keep enough food in your pantry and freezer to last several weeks without needing to make a grocery store run. In addition to groceries, store enough pet food, paper goods, baby items, water and cleaning supplies to last the same period.

We are fortunate that in the U.S., our grocery store shelves are not usually bare. But in some countries, bare shelves are a normal experience. A month ago, we would never have thought that we would be facing the dilemma of empty shelves, followed by waiting in long lines to check out. We have quickly learned that this is our new reality.

Although we live in the U.S. where resources are normally readily available, it is wise in the current circumstances to plan and stay prepared.

Stay invested

The feeling can be gut-wrenching as we watch the stock market indices drop. Most people feel some sort of anxiety when this happens, especially if this continues for an extended period, such as we are currently experiencing. Immediately, we ask ourselves if we are going to run out of money.

While this period is very unsettling, it is important to remember that the market will turn around. Our instinct in a volatile market is to sell out to preserve assets and avoid any additional losses. That approach might yield favorable results if we knew specifically what day to re-enter the market. But we don’t, so hold tight.

The annualized return on the S&P from Jan. 1, 1987 to Dec. 31, 2019, was 11.28 percent. Over this 32-year period, if you were out of the market during the 10 best-performing days, your annual return would have been reduced to 8.85%. If you were out of the market during the 50 best days of this 11,680-day period, your annual return would have reduced to 3.40%.

Staying in the market yields better long-term results.

Stay diversified

It is important to maintain a diversified portfolio so that when the stock market drops 30%, your overall financial portfolio does not drop the same amount.

If you are diversified, you are not holding or invested in a single stock, or in a handful of stocks and nothing else. If you are holding stock in the company you work for, a general rule is to hold no more than 10% of that stock in your portfolio.

In most cases, an investor should have a variety of equity (stocks) and fixed income (bonds) in their portfolio. The best allocation or mix of investments depends on your age and risk tolerance level.

The longer your timeline to retirement, the greater the opportunity to hold a higher concentration of equities. Managing risk as you age means gradually decreasing equity positions and increasing the allocation to fixed income.

Stay connected

Remember to make time right now to stay virtually connected with your family, friends and neighbors. People need one another to support each other through periods of disruption.

Call your family members to listen to them talk about how the pandemic has affected them. Check on elderly neighbors to see if they anything from the grocery store. Stay in contact with your friends, through texting, Zoom or phone calls.

Reset your life

Use this period as an opportunity to spend quality time with your family. Since we live in Southern California, most of us have at least an extra hour or so free now that we’ve eliminated our daily commute.

Turn off the electronics for a set period to spend time with your family. Take this time to do some meaningful activities together. Take a walk outside, plan a meal and cook together, plant a garden, build a puzzle or play games. The list can be as long as your imagination.

Sometimes, we get caught up in the frenzy of life and forget about what is truly important. This pandemic is providing us with the opportunity to reset our values while supporting our family, friends, and neighbors on this journey.

Teri Parker CFP® is a vice president for CAPTRUST Financial Advisors. She has practiced in the field of financial planning and investment management since 2000. Reach her via email at

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