My First Spartan Race

Video Index

00:00 My first Spartan Race!
01:07 Just sold – Chino Village Shopping Center
01:52 The Tenants video game
02:53 Target’s new large format stores
03:40 New tax on LA property sales over $5MM
04:37 Updates on the Metaverse
06:09 Work from Home and Office Real Estate Apocalypse

Hello Investors!

I hope you had a nice Thanksgiving and picked up a few Black Friday specials!

A couple of weeks ago, I completed my first Spartan race in Lebec, California, which is about an hour and a half north of Los Angeles. Back in the day, I used to be a marathon runner and a triathlete, but it’s been 15 years since I last did any sort of organized, competitive endurance race. I wouldn’t really call my participation in this race competitive, but I did the race to get back on the health bandwagon and do something that was out of my comfort zone.

And now I’m hooked! I joined a Spartan training gym in Irvine called Fitness on Fire, which is, coincidentally, walking distance from an office condo that I sold in September, and I’ve signed up for my next race, which will be in the Inland Empire – January 28, at Glen Helen Park in San Bernardino. Let me know if you want to join me at that race, or if you’d like to join me for a training session in Irvine.

Just Sold!

I recently sold Chino Village, a fully occupied 20,000-square-foot shopping center with an additional 2.5 acres of undeveloped land. I originally listed this property for sale in March of 2022 and received several offers within the first week of putting it on the market. When we ran into a Phase 1 issue with a dry cleaner being on site, the offers disappeared. Later on, the City of Chino passed Measure Y, which will allow the land, which was previously zoned only for commercial use, to be used for residential purposes. Once that passed, we had renewed interest in the property again, and we eventually sold to an experienced commercial developer who plans to build multifamily units.

The Tenants

If you love being a landlord so much that you even want to do it for fun and not get paid for it, then this video game could be for you. It’s called The Tenants, and in this game, you act as a landlord of residential property. You start out as a handyman and work your way up to buy property, screen tenants, and deal with renovations.

You have to make decisions on whether to hire someone to fix a broken pipe, or try to save some money and do it yourself.  You also have to deal with tenants who are late on rent, or bad neighbors.  You can also trade up your properties, from a mobile home to a house to an apartment building.

If I had time to play video games, this actually sounds pretty fun to me.  If you have teenage kids who want to learn about owning real estate, this could be a good educational tool.  The developer is planning a follow-up game called The Constructors. which will include realistic interactions with city regulations, zoning codes, and evicting tenants in court.  Sounds like fun!  Maybe future releases will include the ability to own shopping centers.  If so, sign me up!

Target’s New Store Format

A year ago, Target announced that they would be moving to a smaller store format.  Now they’ve gone a complete 180 and now are focusing on larger format stores.
The size of the new stores will be about 150,000 square feet, which is 13% larger than the average Target store. In comparison, the small format stores are between 6,000 and 50,000 square feet.The new larger stores include five times the current space for backroom fulfillment. This allows for same-day services like order pickup and curbside drive-up, which are becoming ever more popular these days.
The new Target locations will also have larger merchandise, particularly in the food and beverage section to try to be your one-stop shop for daily needs as well as grocery items.
Overall, the new store design has the potential to be a big hit for Target. The large store format is expected to be the primary focus in the coming years.

New Increased Transfer Tax on Property Sales in Los Angeles

If you have a property in the city of Los Angeles that’s worth more than $5MM, then this may affect you.  Measure ULA, which recently passed, will enact a 4% tax on the sale or transfer of properties valued at over $5 million and a 5.5% tax on the sale or transfer of properties valued at over $10MMM.  This is referred to as the mansion tax, but it also applies to commercial properties.  This is a huge increase from the current transfer tax of only 0.56% – literally a 700-900% increase. The tax is expected to raise between $600 million to $1.1 billion dollars annually, and the primary purpose of the funds will be to fund affordable housing initiatives.
This law will take effect on April 1, 2023.  So if you have a property in Los Angeles that may be subject to this new tax, and if you have been on the fence about selling it, I’d recommend that you take action soon, so that you save at least $172,000 on the sale of your property.

Updates on the Metaverse

Earlier this year, I did a video about the metaverse, which refers to the virtual reality world that can be accessed using a pair of 3D goggles.  In early 2022, people had paid ridiculous amounts of real money for virtual real estate, such as a $5MM purchase of 19 virtual commercial properties, and a $450,000 purchase of residential land to be Snoop Dogg’s virtual neighbor.

Since then, we have seen interesting things such as a commercial real estate broker at Avison Young who is making a name for himself by specializing in the sale and lease of metaverse properties, and Macy’s Thanksgiving Day parade in the metaverse.

Since then, the excitement about the metaverse has definitely slowed down.  Just take a look at the trend of how often the term is being searched on Google.

But most recently, the company Meta, more commonly known as Facebook, is facing challenges.  They recently laid off 11,000 people or 13% of their workforce, and many of the company’s workers believe that the company’s focus on the metaverse will eventually lead to its slow death.

Meta stock has lost two thirds of its value over the past year as ad revenue has declined, but it is still doubling down on the future of the metaverse.  Will they be correct?  Honestly, I am doubtful.  I’ve only used my 3D headset a handful of times since I bought it around February.  What are your thoughts?  Let me know if you think the metaverse is the future or if it was just overhyped.

Bad News for Office Real Estate

Have you been working from home?  I’m guessing the answer is yes. I’m having my best year yet in commercial brokerage, and I work almost exclusively remotely, as do many of my colleagues at Progressive Real Estate Partners.  How is working from home going to affect the long-term prospects of the office market?  One study by professors at Columbia Business School and NYU Stern Business school was recently published, called “Work From Home and the Office Real Estate Apocalypse.”

The authors believe that there will be a $522 billion dollar decline in office values by 2029 as compared to its pre-pandemic level in 2019.  They predict that New York City alone will lose almost $56 billion, which is about 10% of the US total.

But not too different from retail real estate, this study shows that the well-located Class A and A+ office buildings appear to be faring better than other office buildings, with rents actually rising about 4%. Other findings include that office vacancy rose faster in downtown areas than in suburbs, which makes sense since we know that many people have been moving out of densely populated areas in favor of having more space.

I hope you enjoyed this week’s newsletter and learned something. Thanks for reading and I’ll see you next time!
Mike Lin, CRE