Market Report

Dear Clients and Friends,

It seems to me that all five jurisdictions in Thurston County are being buffeted by small interest groups who effectively stop our local governing bodies from functioning properly. Good governance is not about lurching from moratorium to moratorium.

At the moment, there are at least five moratoria in place, plus a lawsuit on the Port, ostensibly for improper protocol, but actually to stop the Port from being the economic engine it is supposed to be.

I think when jurisdictions have their strategy sessions, they should be able to figure out what are looming areas of concern for them, and act upon them. As it is now, it seems council people are taken by surprise all the time, or they change direction when someone hollers. Then they slap on a moratorium until they can outlaw whatever it is that took them by surprise. Ridiculous. How come developers in Seattle know more about our growth patterns than we ourselves do? It’s embarrassing, don’t you think? And then, if we do need to plug a hole with a moratorium (I can understand how we might be taken by surprise every now and then), they should be no longer than 4 months with no extensions. That way, jurisdictions are forced to act. As I write this, every jurisdiction has at least one moratorium in place.

I noticed in the paper that Olympia has another shot at a conference center. I must say that having the State foot the bill seems more in keeping with the philosophy of making users pay. The better news, one would hope, might be that Lacey’s sports complex is allowed to go forward. If the Boys and Girls Club is located there, that’s terrific!

Unions, hospitals and the public sector. American business cannot compete while shackled to benefit packages that add $8 an hour to each employee. Wage increases are crowded out by benefits. Get this: GM spends more money on health care for its employees than it does on steel (Wall Street Journal). The health care bill adds $1500 to the price of each car. The unions have been unrelenting on this issue. Now, finally, GM figured out that it can no longer run a welfare state if it is going to run a business…

BTW, guess how many foreign auto makers manufacturing cars in the US have union shops? Yep, you guessed it: zero.

There was a time when unions were needed, but the pendulum has swung in favor of employees, and the global economy is making unions obsolete for businesses. Now only 8% of US workers in the private sector are represented by unions (The Economist). The mechanics union strike failure at Northwest Airlines is an example of the rank and file realizing that having a less gold plated job is better than no job at all.

Therefore, unions in the US have had to begin looking around for easier pickings (they call them ‘soft targets’): industries with essential services that can’t just shut down if negotiations stall. They found two easy targets: hospitals and the public sector. Hospitals are easy to bring to their knees because they can’t shut the doors for a month or two in order to fight back. The unions now control many of our hospital workers, and they like to have all the contracts come due at the same time, so the institution can’t move workers around to fill in. Then they move in for the kill. What also gets killed though, is non-essential jobs.

The other easy game is the public sector. In 2004, the WA state legislature voted to allow government employees to bargain for wages and benefits. Now all 53,000 general government workers are required to be represented by the union, whether they want to be or not. If they don’t send in their dues, they’re fired. Boom. The union is happy, because now it will haul in between $20 and $30 million more to its coffers, and Democratic politicians are happy too, because their campaigns are underwritten by those union coffers.

Now, the SEIU (service sector union), fresh from the break-off from the AFL-CIO, is recruiting our school employees. The teachers of course are already in their own stranglehold WEA union (the greatest road block to better education in history IMHO), but now the SEIU (the same organization that cripples the hospital industry) stands to “represent” tens of thousands of school employees. Will the taxpayer fight back? This union plays rough, as you might have seen from the “Letters to the Editor” whereby they charge that St. Peter Hospital overcharges poor people. In point of fact, St. Peter does $1,000,000 a month in charity care, but the union says that’s not enough! Unions don’t attack directly (why not be honest?), but instead use surrogates to carry out their smear campaigns. Please note: I am the current president of St. Pete’s Community Board, but if I didn’t believe that this hospital is our community treasure, I wouldn’t be on the Board. We need this hospital to remain viable in this climate of low reimbursement, lawsuits and welfare mentality. This antagonistic union isn’t helping.

Another factoid for you from the WSJ: the NEA (National Education Association-parent of the WEA mentioned above) sent $65 million last year to Jesse Jackson’s Rainbow PUSH Coalition, the Gay and Lesbian Alliance Against Defamation, Amnesty International, AIDS Walk Washington and dozens of other advocacy groups which have nothing to do with teachers. The payroll of the NEA was $58 million last year, and they only have 600 employees. That’s almost $100 grand per employee, somewhat higher than the teachers they ‘represent’. To see who are the recipients of union largesse, go to www.union-reports.dol.gov

The worm of crippling lawsuits may actually be turning, thanks to Judge Janis Graham Jack. Her findings of fraud in silicosis and asbestosis claims have opened the doors for subpoenas of doctors (one Dr. Ray Harron has provided medical reports in support of 76,224 individual Manville Trust claims, and Jay Segarra more than 23,000 claims) as well as screening firms and lawyers (WSJ). Turns out that 70% of the claimants of silicosis were also claimants of asbestosis, but those two very seldom occur together. The courts somehow even allowed cases to go forward even where there were no symptoms of disease! After Judge Jack’s 249-page decision, there is a lot of backtracking and finger pointing going on. I’m just glad that maybe this exposure of fraud for profit will stop these slimeballs from bankrupting any more companies. I hope they get a taste of what they put the rest of us through.

I’ve written before bemoaning the millions of dollars that the taxpayers of this state pay for third party damages to victims of miscreants who “might have been prevented” by the State from harming innocents. For example, a parolee who harms someone, or the abuse by the husband of the woman who received welfare payments from the State, or the injury of the toddler in a state licensed day care center whose license ‘should have been revoked,’ etc. Most other states either don’t allow these suits or cap the payouts. Rob McKenna, our new Attorney General is working towards changing the law so that the state no longer will pay for the wrongdoing of third parties unless its acts were a direct cause of the injury. I think that the State has been way too vulnerable to these types of lawsuits, costing unpredictable millions every year, because the State either settles or loses.

Port: If I were Weyerhaeuser Company, I’d tell Olympia to go pound sand. If we turn away a great paying customer (not only that, they’ve been listed as a ‘green’ company) like this because a couple of people object to more trucks on the road, then we shouldn't have a port. Truck traffic is a sign of a good economy. When you stop seeing trucks, you’re looking at the next recession. Trucks are a good thing, folks. I hope that the Port learns from this travesty to follow proper protocol at all times because this will not be the last challenge of this type to come from folks who do not want industry in this county.

Local Real Estate picture: Although Washington is generating a lot of tax revenue from construction and real estate sales, and we seem to be doing OK here, I see a lot of office space for lease. People still want to purchase their office space, and who can blame them? That will change only when 10-year Treasury rates climb. No sign of that yet.

Retail leasing seems fairly healthy, although most of it is big box stores. They are responding to the energy of our local economy.

Property taxes may be climbing, since assessment values are way up. Assessments are way up because cap rates are low because interest rates are still low, which makes investors be able to afford bigger loans, which allows them to pay more for real estate, which makes the County very happy. Watch for the cash grab.

National cap rates:

• strip shopping centers: 7.5%
• suburban office market: 7.2%
• apartment market: 7.2%

Multifamily. The vacancy rates in Thurston County overall are 4.4%, with Lacey showing 2.7% and Tumwater at 6%. Oly is in the middle. Prime’s multifamily portfolio vacancy rate was under 1% last week. I’ve never seen that before. So obviously, rents will be rising more rapidly. That is a very healthy market, and it is reflected in cap rates of 6% for local multifamily. There are some new units coming on line, though, and there will be more…things always even themselves out.

Inverted Yield curve, growth, our economy.

The 10 year rate dipped briefly below the 2 year rate a couple of times now, so it is not a fluke. Some say it is prognosticating recession, since that is what it has mostly done in the past, but others say that there are new forces at work, such as vast amounts of global liquidity going into 5 and 10 year treasuries, that may reduce the predictive value of the inverted yield curve. We've had 10 quarters of greater than 4% growth in GDP. And the last 8 quarters have been the least volatile in our history. We’re due for some correction. Forecasts are for about a 3% GDP growth for 2006. The one bad thing that could cause a problem is a rapid rise in interest rates. This would trigger defaults and refinancing for those with adjustable mortgages and/or overextended credit, which would force those people to sell at lower prices, which sets off a downward spiral. I don’t think that will happen. I think rates will increase moderately, and I think that labor markets will strengthen.

Contrary to what all the Bush-bashing-totally-negative press leads you to believe, our WA economy is the strongest it has been in 5 years. Every day we hear that the state surplus is larger. Estimates can’t keep up with actual growth! Real estate and Boeing are the drivers. Real estate excise tax collection is up 45% over a year ago, and Boeing (2.5% of state payroll) is enjoying the results of growth of air travel in emerging countries. Those folks are flush with cash (see Treasuries, above). They also save a lot, because (a) they haven’t got that much to buy, and (b) they have no safety net if their earnings stop (Michael Parks, Marple newsletter).

I don’t have to tell you that housing is strong in the state, but what you might not know is that it has been stronger in Thurston County than statewide over the last 1, 3 and 5 years (Marples newsletter).

Speaking of Bush bashing, here’s a little factoid for you: turns out that Kyoto is not working all that well (surprise…..?!). It turns out that of all the European countries, Germany is the only one to actually reduce emission rates. France, England, Spain, all are higher. Average emission rate in Europe is higher than it is in the US!!

Prime has two new employees: Mary Baldwin and Connie Kuenzel ... both in property management.

Yours truly will be one of 12 guest columnists at The Olympian in 2006.

For Lease and For Sale properties

As I prepared to list our “For Lease” and “For Sale” properties as I have done for the last 18 years, I realized that along with our growth in the market has come a number of listings now too large to fit into this market report. The good news is that most of our calls come from our signs, from our website, from CBA (Commercial Brokers Association), several other on-line commercial listing services that we belong to, and from plain old word of mouth. If you have a property listed with us, or if you are looking for real estate to lease or to purchase, you can see all the information about it on our website: www.primelocations.com. These listings are much better covered in these new formats. Onwards into the information age we go. Of course, you can still call…you will get a real live human being on the phone who will direct you to the proper person.

Priscilla S. Terry, ed. CCIM