Essays by John McNellis
Retail Vacancy Taxes: Empty Stores, Empty Logic
Palo Alto’s city council is considering a “vacancy tax” on empty shop space in its downtown, penalizing owners stuck with vacant buildings. Not widely heralded for its common sense, the Council reasons that landlords are behind our beleaguered downtown’s hollowing out. One council member crowed that greedy landlords are intentionally...
The Pacaso of Time Shares
More often than not, the movie bad guy is a drug lord or a nature-paving developer. While these two villains seemingly have little in common, one species of real estate promoter makes its money in precisely the same manner as infamous narcotraficantes. The business model for drugs is fairly straightforward....
“Resuscitation Hardware?”
I shorted a stock once. As a Kmart landlord 20 years ago, I saw firsthand how badly that discounter was run. Its stores were filthy, its cheap inventory spotty and its employees disheartened. Had it been a race horse, the vets would have put it down. But Kmart’s stock soared...
San Francisco: Another Wrong Left Turn?
San Francisco Supervisors Preston and Peskin have proposed the “Neighborhood Grocery Protection Act” (NGPA). If enacted, this law would require any supermarket desiring to permanently shut down to give six months’ notice to the city and public. Once given, the grocer would then be required to meet and “work in...
AI: It’s Here Now
When ChatGPT hit the street in late 2022, a close friend began amusing himself—and occasionally, me—by having it rewrite my essays. Sometimes, Bob would ask Chat to rework the piece in my voice (it acquires this capability by scraping one’s writings off the net), sometimes in its own disembodied style....
Retail's Back
“But is retail OK?” Visibly distressed by his passel of non-performing assets, the banker lit up at last and exclaimed, “Retail is the golden child of our entire portfolio. Shopping center loans are our best assets.” The banker was speaking of bread-and-butter shopping centers, real estate Wall Street had largely...
Empty Offices: A Life Science Solution?
These are the times that try landlords’ souls. Office building owners are scrambling, some tossing the keys to their lenders, others gilding their buildings to attract the few tenants left in the market, still others eager to convert their towers into uses not beset by the wasting disease of work-from-home.…
Commercial RE: Firetrucked… but not forever
Henslowe: …Strangely enough, it all turns out well. Fennyman: How? Henslowe: I don't know. It's a mystery. – Shakespeare in Love Real estate industry conferences this season have been so downcast that one could sum up their conclusions about our business with a single unprintable word. As to that, here’s…
Lies, Damned Lies, and Financial Statements
Bankers know that developers’ financial statements are rife with dubious valuations based on hopeful assumptions and guesswork. So why do they insist on them? Franklin Delano Roosevelt’s first vice president, “Cactus Jack” Garner, is fondly remembered for having observed, “The vice presidency isn’t…
Hard Money for Hard Times
To everything turn, turn, turn There is a season turn, turn, turn And a time to every purpose under heaven A time to borrow, a time to lend* Some pundit proclaimed that commercial real estate skipped the recession and went straight to the depression. Like most blanket statements, that one is full of…
Commercial RE Mid-Year Report: Something’s Gotta Give
Stick real estate in the time-out corner, and 2023 is looking far better than the experts prophesied six months ago*. The S&P 500 is up 16 percent, layoffs are dropping, and economic growth has been so strong—and inflation so stubborn—that Fed watchers are predicting two more rounds of rate hikes. Now,…
Buying Time in San Francisco
My recent observation that San Francisco’s office market has lost 60 percent of its value may have been optimistic. In the last month, a quality high-rise at 350 California Street has apparently gone into escrow at a price 75 percent less than its 2020 value. If it closes at its reported $67 million…
Office Meltdown pits Borrowers against Lenders
Writers of self-help books swear grief has five stages—denial, anger, bargaining, depression, acceptance. They could be right. According to JP Morgan Chase, 21% of office building loans across the country have gone bad. The borrowers of these loans were definitely in denial, are likely still angry,…
SVB: Monogamy’s Downside
Silicon Valley Bank’s overnight collapse cold-plunged us into reality, a grim reminder that nothing is more constant than fear and greed. The bank's failure has us all scurrying to protect ourselves. We hold an SVB letter of credit as rent security from a start-up tech tenant, and we have an operating…
Could Turkey’s Disaster Happen Here?
The humanitarian tragedy in Turkey and Syria—50,000 plus deaths and more than a million homeless—was triggered by a 7.8-magnitude earthquake (M7.8). Could it happen here? The earthquake could. San Francisco’s 1906 earthquake was estimated at M7.9 and California’s Cassandras have been predicting another…
Going All-Electric at our Peril
Our electricity went out during that last big storm. The winds had wracked a nearby power pole and a line snapped. PG&E responded well, its crew working through a night of howling rain while we “glamped” at home. Like pioneers, we read by candlelight and went to bed early. Our experience was far from…
Vacant Offices: A Private Solution?
The office market is grim, barreling toward grimmer. According to Newmark, the national vacancy rate in Q3 topped 17.6 percent. Downtown Oakland stands at 21.3 percent, while San Francisco is outpacing the pack at 24.1 percent. With almost no traditional financing available and a bid-ask spread wider…
San Francisco: Falling off the Cable Car?
Like the road to hell, the path to urban decay can be paved with good intentions. San Francisco has plenty of good intentions. Its voters will vote on fourteen separate local ballot measures on November 8th, among them a proposed tax on empty housing. If history is any indicator, two-thirds of these…
Retail on the Rise
The Chicago Cubs went 108 years between World Series victories. It may not be quite that long before retail wins real estate’s World Series, that is, before it becomes the industry’s most desirable asset class. After 16 years in last place, bricks & mortar retail has finally climbed a rung, possibly…
The "Under-demanded" Office Market
The swallows abandoned San Juan Capistrano in the 1990’s. Their home—the historic mission—underwent a renovation, the birds lost their ancestral nests and, despite every effort to lure them back, they have yet to return in meaningful numbers. No less flighty, workers abandoned their office buildings…
Commercial Properties: Time to Hold ‘Em?
Years ago—beset by the Great Recession—one of Tennessee’s finest developers shook his head at his financial statement and drawled, “My net worth’s gone down by half, but my cash flow’s the same.” He wasn’t alone. Commercial real estate nationwide lost around forty percent of its value during those trying…
Real Estate's Early Autumn
The Wall Street Journal reported last week that April’s commercial property sales were down 16 percent compared to April 2021. In detailing the market’s loss of velocity, the newspaper stated that the hotel, senior housing, office buildings and industrial sectors were particularly hard hit, while retail…
Time to Stop Hammering?
"Thus far this year, we’ve dropped three projects because of breathtaking cost estimates.” A big-time San Francisco contractor told me the other night that he half-wished for another recession. Why? Because his subcontractors—the guys who actually do the work—are so inundated with jobs that they’ve…
Inflating Commercial Real Estate?
The Urban Land Institute is arguably real estate’s most prestigious international organization. There to advise, the learned pundits at its spring meeting in San Diego seemingly predicted every possible economic outcome for next year. Some seers contended that we are back to 1981, and that our soaring…
Drug Wars: “Pharmacies in the Crosshairs”
A couple months ago, I called my doctor to renew a prescription at Walgreen’s. She suggested trying NowRx, a Silicon Valley pharmaceutical start-up offering home delivery. It turned out that with no insurance required, NowRx would deliver 90 days’ worth of a generic heartburn medication* for $14.50.…
Is our Approach to the Drought all wet?
Drought: (noun) 1. A prolonged period of abnormally low rainfall, leading to a shortage of water Despite our spectacular rainy season thus far, California fits within the first half of the definition of a drought: We are in a prolonged period of abnormally low rainfall. But what about our shortage of…
On Crime, Punishment and Justice
Two striking events happened 2200 miles apart the weekend of November 19th. Organized gangs crushed retailers across the Bay Area with cinematic smash-and-grabs hours after Kyle Rittenhouse was acquitted of murder charges in Wisconsin. The teenager’s jury decided he’d acted in self-defense when he killed…
Murder on the Housing Express
Housing experts insist that California is three million residences short of a full load and that the state is falling behind by another 100,000 dwellings every year, producing 80,000 new residences when twice that is needed to keep pace with population growth. Like the national debt, our housing shortage…
Stealing the Golden Gate
According to the National Association for Shoplifting Prevention, one in eleven shoppers steals, costing American retailers almost $50 billion a year. The director of global security for a nationwide retailer says that 80 to 90 percent of theft is done opportunistically, by individuals sticking, say,…
Retail: Robbing Peter to pay Paul
Once upon a time University Avenue was the main entrance to Stanford University. Not today. Palo Alto shut the avenue a year ago in an effort to save its struggling mom & pop restaurants. That small bistros are the cuddly polar bear of the pandemic’s economic climate change is indisputable. Helping…
Descending Family Business Mountain
Only fifteen percent of Mount Everest’s 212 climbing deaths between 1921 and 2006 occurred on the way up. Almost all happened on the descent. British Medical Journal 2008 Thirty-eight years ago, friends went on a day hike near Yosemite. The couple took the wrong fork up a dry creek bed and, instead…
Modular Construction: “Not there yet”
There is only one way for a modular project to go right, and a million ways to go wrong. Watch enough construction and it may occur to you that things have scarcely changed since Ramses II’s building spree. Yes, we have cranes, forklifts, and electric saws, but so much of building still comes down to…
California: not “Permitting” Recovery
The city’s building inspector confided, “I don’t know why anyone would ever pull a permit for an apartment remodel; the cities make it so difficult.” California’s cities want to do the right thing. They’ve been telling us all the right things since the Covid mess began: promising to speed building permits…
Silicon Valley: Supply in need of Demand
“Britannia est insula. Italia est paeninsula.” The first two sentences of my freshman year Latin book were easy to understand: England is an island and Italy a paen or almost island. After that easy beginning, Latin tumbled into incomprehensibility, but the thought stuck that England was fully insulated…
Retail: One Year After
A year ago, our shopping centers were shuttered, and our tenants so crushed we forgave their April rent. Believing the world would reopen by mid-April, we thought our merchants would have a couple weeks of free-rent to make up for March’s closure. We couldn’t have been more wrong. A year later and we’re…
Retail’s Not-So-Artificial Intelligence
Geofence: A virtual boundary set up around a geographical location, such as a shopping center or retail space. Owning retail has been challenging since the Great Recession. You likely know the reasons why: overbuilding, the internet, rapacious private equity, too many lackluster tenants. You also know…
The City in 2025
Twenty years ago, I attended a real estate conference that featured a very impressive doctor as a keynote speaker. This Harvard doctor didn’t merely proclaim, but flat-out guaranteed that cancer would be cured within five years. Seven years ago, I chanced to sit next to Astro Teller and Sebastian Thrun…
The Art *on* the Deal
“There is no there there.” When Gertrude Stein wrote that deathless line about Oakland, it seems she wasn’t being snarky after all; she was grieving over the loss of her girlhood home to its path of growth. What would the poet say today? Oakland is popping: 2400 residential units built since 2016, another…
High Times In the Plague Year
Landlords already know this: People are getting more toasted than Wonder Bread. Happy Hour starts at 3 o’clock. Tenants selling reality-relief are killing it. I called a number of retailers to double-check my desultory anecdotal evidence. One, the owner of a first-rate supermarket chain, said his alcohol…
Flight of the Techies
Viewed a certain way, life resembles a Vegas sports book — its dramas have at least a few winners; not everyone loses. Covid-19 is no exception. The airline industry is on the tarmac, but RVs have never been in greater demand. Public transportation has a flat tire, yet bicycles can’t be found for love…
California Flame-Out?
“Scotts Valley evacuated. Our Safeway center is shut down,” my partner texted last Friday. That meant four of our shopping centers in Northern California were threatened by wildfires. The CZU complex fire, the one endangering Scotts Valley and Santa Cruz, remains out of control as of this writing. Another…
A Vaccine for Retail?
Retail has the virus. Just as with people, different retailers are reacting to this infection very differently. Ailing merchants with comorbidities are suffering — or dying — while those without long-term illnesses are asymptomatic, even healthy. Excess capacity — too many stores — has been American…
Plagued Retail and the View from the Trenches
I have two options that are non-negotiable. I’m going bankrupt (chapter 7). COVID happened, and I cannot survive. I’d rather not go through bankruptcy, because it ruins my credit, but if I have no choice, I won’t think twice. The second option is to let you keep my deposit and take what I have in the…
The Post Plague Office
Real Estate in the Plague Year Last week, Mark Zuckerberg said he believes that half of Facebook’s employees will be working from home over the next 10 years. To that point, Facebook released the results of an internal employee poll: 50 percent plus want to get back to the office, while 40 percent would…
Death of the Elevator
Real Estate in the Plague Year Without the elevator…there could be no downtown skyscrapers or residential high-rises, and city life as we know it would be impossible…the elevator’s role in American history has been no less profound or transformative than that of the automobile…“If we didn’t have elevators…we…
Working the Recession
Recession: a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. GDP dropped 4.8 percent in the first quarter of this year—the biggest contraction since 2008—a fall that will resemble an infant’s…
Solving our Housing Crisis One Garage at a Time
To shelter-in-office (yes, mostly alone), I now walk through a couple miles'; worth of pleasant, leafy neighborhoods in Atherton...
Our Retail Marshall Plan
Because we've been in the neighborhood shopping center business for decades, not only our tenants but also our competitors have begun asking us what...
Your Real Estate Empire-Build it or Buy it?
What's your strategy in allocating capital between buying finished projects and doing development deals, what percentage...
Understating Your Net Worth
If you’re in real estate, if you’re developing or simply investing in property, you’re in the business of borrowing money. And if you’re a serial borrower, you have a chore to do every January: You must prepare your personal financial statement for your bankers. Unlike the reporting requirements for…
How to Keep Friends and Influence No One
“80 percent of friendship is kindness.” We all want friends. We all want to be liked. Most of us wish we were better liked. Over the holidays, I finally read a book about making friends that I’d been putting off for fifty years: How to Win Friends and Influence People by Dale Carnegie. One of the most…
Meals on Broken Wheels
What do DoorDash, GrubHub, Postmates and Uber Eats have in common with Lassie? Nothing. They’re dogs; Lassie’s a superstar. What do they have in common with each other? Everything. They take the world’s second oldest profession—Babylonia had delivery boys—sprinkle it with tech dust, click their ruby…
Is Tesla a Climate Change Bystander?
(EDITOR’S NOTE: While The Registry does not usually weigh into making changes to opinion articles, it is worth pointing out that some statements below should be qualified. Coal was the source of around 27 percent of electricity generated in the United States in 2018, according to U.S. Energy Information…
Is it a Wee Downturn?
After all, paraphrasing that famous philosopher, Yogi Berra: “Ninety percent of a recession is half mental.” It is a well-established law of cartoon physics that characters may walk on air as long they are unaware of doing so. Once Bugs Bunny realizes he’s airborne, however, gravity reasserts itself,…
Oh, Say Can U.C.
Last week the city of Berkeley sued the University of California over its proposed redevelopment of the worn-out Upper Hearst parking garage at the campus’s northeast corner, citing the usual suspect: an inadequate environmental impact report (EIR). This story—development gets sued over EIR—is such…
Game of Phones
The International Council of Shopping Centers, far better known as the ICSC, gathers this weekend for its annual meeting in Las Vegas. Retail’s leading trade organization, the ICSC counts as members the tenants, developers, contractors and brokers who have built almost every shopping center in the country.…
Retail’s Existential Threat is Private Equity
A “bust out” is a fraud tactic, commonly used in the organized crime world, wherein a business’ assets and lines of credit are exploited and exhausted to the point of bankruptcy. Wikipedia Bleeding badly, Debenhams, a 200 year old British department store chain, died last week. The coroner trotted out…
Whole Foods’ Existential Threat?
“Amazon’s plunge into the $800 billion US grocery industry posed an existential threat to rivals.” CNN August 2018 A couple questions remained in the wake of Whole Foods’ announcement last week that it was dropping prices on over five hundred items by twenty percent. Is this Amazon’s long-awaited spring…
Death by Power Point
With speaking season just around the corner, with the conferences, conventions and even lowly breakfast panels backing up like rusting jets at O’Hare, the National Power Point Association (NPPA) is out in full force, urging its 27,000,000 members to whip out their presentations and fire away. With…
WeWorking a New Angle
With major announcements almost daily, WeWork is stealing so many headlines it’s annoying the president. The latest is its name-change to WeCompany, the old name being simply too restrictive for a company bent on global domination. Among its new divisions are WeLive, WeGrow and even WeBank is on the…
Winter is Coming
As of last Friday, the S&P 500 was down 2.33 percent for the year. Like a dead rat in the basement, everyone can smell the next recession, everyone knows it’s coming, but no one knows when. Nobody. The clever pundits give its commencement the same wide berth they would accord that moldering rat. One…
Mattress Firm’s Moral Bankruptcy
Mattress Firm, the nation’s largest mattress retailer, filed Chapter 11 bankruptcy last month. Why did it go bankrupt? Simple. The company had far more stores, more than 3,600 nationwide at its 2016 peak, than could ever possibly be profitable. The intriguing question is how did MF end up with too many…
Amazon’s Clicking into Bricks
In May 2017, The Real Deal ran a cover story entitled, “Retail is F*cked.” While snarkier than its mainstream competitors, it encapsulated the prevailing sentiment of the day, that all that remained for traditional bricks & mortar retail was for the doctor to call its time of death, no doubt by text.…
A Broken Compass?
Does outspending your competition buy you the best talent? Of course. Does it guarantee you the World Series championship? Not so much. Just ask last year’s Los Angeles Dodgers. Compass Inc., a residential brokerage company that parachuted onto the scene in New York City in 2012, swiped the spend-it-all…
Could California Flame Out?
The phone rang early yesterday. “Well, our center’s still standing,” my partner said. “Whoa.” “The fire’s only a couple blocks from us, the whole...
Uber’s Johnny Cab Future
While Uber isn’t exactly driving straight to the bank, it may get there yet. The company has ripped through $10 billion to date, but its latest report (Q1 2018) is sufficiently rosy for investors to buy into a $62 billion valuation. How rosy? Uber is losing lots of money, but only half as much as it…
Screwed: Brokers Tell-All
“Business is the polar opposite of a high school dance—you can always find someone to screw you.” “Dear John: I think you should write about how everyone is a stand-up guy until money’s on the table. Over the past decade, I’ve been screwed by countless so-called stand-up guys. I’m talking about both…
Many Happier Returns
Solving E-Commerce’s Challenge to Traditional Retail Comes in Small Packages Before the Wall Street Journal pontificates again about retail’s demise, about all those tumbling bricks, it might do well to consider e-commerce’s Achilles high-heel: returns. 40 percent of all soft goods—shoes, apparel, accessories,…
Does WeWork at All?
Company discloses $1 billion losses in bond offering Wall Street’s biggest houses just hawked $702 million in junk bonds for WeWork. The junk pays 7.875 percent interest and is due in 7 years. With 10-year treasuries hovering almost a full 5 percent less, this offering sounded better to the bond-buying…
Seeing the Forest for the Trees
If you are an entrepreneur, you are an optimist. You have to be. And, Pollyanna aside, it is no simple trick remaining optimistic, and it grows harder by the day, particularly if you focus on the daily news instead of much longer-term events, if you focus on history’s weather rather than its climate.…
Density and California’s Senate Bill 827
Give Scott Weiner a medal. While not a complete solution, the state senator’s proposed bill, SB 827, directly addresses California’s two most pressing issues—our housing shortage and traffic woes—by densifying housing near transit stops. In broad brush, SB 827 would allow residential buildings up to…
Is the 1031 Exchange Panacea or Placebo?
Upon selling a supermarket last week, we deposited our proceeds into a 1031 exchange account. Call this maneuver the triumph of hope over experience, because we have had precious little luck exchanging properties over the past ten years, pulling off just one trade from among a half dozen attempted.…
The Hell of Regulatory Interpretation
One truth that bears learning is this: News is very seldom as good—or as bad—as it first appears. Even when it comes out of Washington, D.C. If you exult over making a fistful of money, you will soon recall that half goes to the government; when you lose your shirt, your accountant will remind you of…
Investing in Accidental Assets
Casting about in the cluttered basement the night before our firm’s annual Christmas lunch, I happened across a couple bottles of wine, survivors from a purchase made more than 30 years ago. The wine was a French Bordeaux from the fabled harvest of 1982, more specifically, a Grand Vin de Leoville du…
Murder on the Retail Express?
Putting the black in Black Friday, the Wall Street Journal found almost no pulse in traditional retail last Friday, declaring that shoppers were instead flocking to the malls within their phones. That no one at the Journal trued this conclusion against its own article (same edition) about UPS squeezing…
California’s Housing Crisis is a High Class Problem
There are problems and then there are high-class problems. Being unemployed is a problem. Getting hit with a huge tax bill is a high-class problem. Not qualifying for food stamps is a problem while discovering your favorite bistro is fully booked is a high-class problem. Being chased by debt collectors…
Housing Crisis Band-Aids
Governor Jerry Brown just signed fifteen affordable-housing bills into law. A few might do a little good. Two senate bills will raise a bit of money. Senate Bill 2 will charge you a recording fee of up to $225 on any transaction not already subject to a transfer tax (e.g. a mortgage refinance) and Senate…
Leaving Retail
I received an invitation to attend a cocktail party in Los Angeles at next week’s International Council of Shopping Center (ICSC) meeting. In declining, I explained that we would not be attending the ICSC, our first absence in decades. Somewhat forlornly, our host replied he was hearing that a lot.Why…
Hollowing out the Museum
“A full-fledged housing crisis has gripped California…” New York Times 17 July 2017 Yes, our housing crisis is so critical those envious bastards at the Times are proclaiming it on their front page. So critical that a local politician here is more likely to come out against world peace than affordable…
The Only Free Cheese is in a Mouse Trap
August 8, 2017
The only free cheese is in a mouse trap. Learning to recognize the trap of easy upside without breaking any fingers is part of the tuition one must pay to become proficient in real estate.
Over-Storing America
June 24, 2017
That retail is overbuilt is obvious to anyone who has ever driven twenty miles in any direction in America. Less obvious is the why of over-building. This is worth considering.
Is Macy's Amazon's Next Target?
June 23, 2017
A month ago, we asked how long it would take Amazon to become the country’s biggest bricks & mortar retailer.
For the Class of 2017
May 31, 2017
Rather than focus on practical advice in this year’s remarks, I offer instead a simple observation: I have yet to meet a self-made, wealthy man who has stopped working.
The Death of Retail?
May 9, 2017
Some genius has said last rites over retail’s empty storefront every day this year, causing even its faithful to wonder if they are fiddling in the Titanic’s quartet.
Oh, Lucky Man
April 11, 2017
As the red-staters in Congress gather yet again this week to disembowel the Affordable Care Act, it may be worth considering why it is that so many congressmen care so little about so many.
Marching Into Madness?
“Cocaine’s for horses, it ain’t for men They say it’ll kill you, but they won’t say when” Cocaine Blues When it comes to business cycles, predicting when is the great temptation, one that pundits—for fear of being spun off the publicity carousel—seldom resist. But let’s withstand that impulse and also…
There's No Place Like Home
If idle hands are the Devil’s work shop—they are—idle money is surely his pied-a-terre. When left with little to do, small boys play with matches, older ones play with hearts and truly old boys start wars. Money is no different. When ignored, when left alone to pile up, when shackled in bonds, it begins…
Groceries Falling Through the Net?
In hindsight, yesterday’s common wisdom is often so wrong we wonder how we ever thought it true. In fact, some of us—the clever—occasionally deny having embraced discarded wisdom. We say we knew all along that Trump would win or that butter was good or that flossing was a waste of time (I still can’t…
So This is Christmas
We all need to believe.Whether hard-wired into our genome or learned from our first breath, this universal hunger manifests itself in different ways, but at heart it’s always the same: we believe in something incapable of proof, sometimes going all-in on beliefs that border on the absurd. Scratch an…
Is Retail’s Middle Earth Flat?
We own and develop suburban neighborhood shopping centers within about a two-hour drive of San Francisco. We both build new projects and manage a portfolio of centers that we have developed over the past thirty three years. We thus have leasing opportunities almost weekly. Unfortunately, our opportunity…
Outward Bound, Now More Than Ever
Thanksgiving at home is the traditional time and place for contemplating not only your good fortune—and sharing a bit of it—but your kindness in general. Worthy thoughts for a wonderful day, but, unlike checking your home furnace, ones that need not occur just annually.Last summer, I went on a five…
The “NTM”
Making it in Real Estate (Part Sixteen): The “NTM” Properly constructed, primers should be sequenced in terms of importance, the first chapter containing the writer’s best advice, the next, his second best and so on. Turning this time-honored rule upside down, we arrive at my best advice—the “NTM.”Having…
McNellis on Authoring His Book
Real Estate Entrepreneur, Founder and Author of “MAKING IT IN REAL ESTATE: Starting as a Developer” John McNellis is the founder of McNellis Partners, which specializes in developing supermarket-anchored shopping centers. His partnership has grown on its strategy of developing only about two projects…
No Partners, No Problems
Making it in Real Estate (Part Fifteen): No Partners, No Problems In the beginning, we all need financial partners. The wealthy may use their families and the rest of us our friends, but we start with someone else’s money. As a novice, you have financial partners by necessity. Should you have them by…
Trumped Real Estate Industry
I have been a real estate developer and landlord since the early 80’s. Even then, Donald Trump had a reputation within our industry as an empty suit, a blowhard with a knack for front-page publicity. Even then, he was giving us a black eye.Already the second-most reviled occupation in the country (losing…
Rent Control Behind the Curtains
Rent control measures are sweeping the San Francisco Bay Area. For good reason. To pay no more than 25 percent of your pretax income—the yardstick for apartment affordability—you must earn $170,000 a year for an average two bedroom apartment in Mountain View. With even the techies doubling up, bunk…
The Back of a Napkin
Making it in Real Estate (Part Fourteen): The Back of a Napkin If you begin analyzing sales packages, you will soon encounter properties with numbers so flat, returns so anemic and projections of future values so clownishly optimistic that you may despair of ever finding a decent deal.Don’t. A great…
A Little Help From my Friends
Making it in Real Estate (Part Twelve): Selling vs. Holding Some decisions in life are easier than others. Deciding whether you want fries with that is a piece of cake. Deciding to tell a remorseful friend the truth about his new tattoo is considerably harder. Among the hardest in real estate is determining…
Buying it Right
Making it in Real Estate (Part Eleven): Buying it Right In Anna Karenina, Tolstoy begins: “All happy families are alike: Each unhappy family is unhappy in its own way.” This is true of real estate as well; all happy deals are alike—they start with a motivated seller. Young developers often make the…
For the Class of 2016
It appears my invitation to address Stanford’s graduating class was rejected by my spam filter. It also blocked commencement speech invitations from an underwater welding school and Antelope Valley Community College. Happily, my filter—God’s gift to the internet—has left me free to publish my thoughts…
Airbnb’s Air Quality Control
(This is a follow-up to last month’s article, Airbnb: Hoods in Hoodies) Of the sharing companies, Airbnb may be the best. Uber works well for its riders, better for itself and terribly for its drivers. The company recently announced a compensation plan for “power drivers.” Refreshingly medieval in its…
Airbnb’s Hoods in Hoodies
In the immortal words of Holden Caulfield, it’s time to cut the crap. Despite its airy prose, Airbnb is not about “belonging anywhere.” It is not about hipsters having someone crash on their couch for beer money or granny letting out her sewing room to traveling nuns. No. Airbnb and its imitators are…
Sharing Time in Hell
You can be in real estate and still possibly do some good in the world. The easy way is to build low-income housing or rehab blighted neighborhoods. But to really do the Lord’s work, consider instead preaching against the perils of owning a time-share. This is not easy. Like a street-corner fundamentalist…
The Politics of it All
Making it in Real Estate (Part Nine): The Politics of it All Rents and occupancy rates are tumbling today in North Dakota because shale oil is mud in a $35 dollar a barrel world. Once the hottest real estate market in America, a Northerly is now blowing across the prairies, and landlords are scarcely…
Your New Year’s Obituary
If you haven’t made a New Year’s resolution yet, you might consider another way of possibly improving yourself. Rather than resolving to lose ten pounds, drink less or read a new book every week, you might take the long view and ponder your own obituary. It’s been said before, but is worth repeating:…
Thanks for Giving?
Started three years ago, “Giving Tuesday” is becoming to the non-profit world what Black Friday is to retail. Set five days after Thanksgiving—this year December 1st—Giving Tuesday is opening day for the charitable season: The harvest is in, taxes set aside and the Christmas bill has yet to arrive.…
The Stadium Tab
Winning power through public largesse was old when the Sphinx arose from the bulrushes. In 100 AD, the Roman poet Juvenal satirized the ruling elite’s strategy of buying off the proletariat…
Autographing the Deal
Making it in Real Estate (Part Eight): Autographing the Deal It seems we all lie. Depending on which lying study you choose to believe, we tell somewhere between a couple and a couple hundred lies a day. The lower number is found among monks who have taken a vow of silence while the higher counts days…
Back to School
Real Estate Jargon Demystified Whether a lawyer, architect, engineer or broker, a young professional in real estate often hears expressions—some slang, others simply arcane—that neither the finest education nor the thickest dictionary is likely to illuminate. And the professional must solemnly nod,…
Flatten the Code
When even the crooked developers think the polls-leader gives real estate a bad name, you know Washington has problems. A short-term phenomenon—the ever braying Donald Trump will soon enough become a quaint footnote—yet his surprisingly successful candidacy has already served its purpose, underscoring…
WeWork Until WeDon’t
When was irrational exuberance upgraded to the first class lounge? When did delusional insanity take over the valuations of start-up companies?
In Praise of Inefficiency
A lender on one of our projects wrote last week, demanding we post an $800,000 letter of credit to further secure its loan because the credit rating of our principal tenant—Safeway—had fallen to near junk bond status...
Big City Dreaming
Mixed Use, Mixed Results It’s the “Thou Shall Not” that dooms religion in America. If ecclesiasticals would content themselves with the positive, with instructing us on what to do—to be compassionate, charitable, do good works and so on—rather than forbidding behavior as natural as sweat, our houses…
Let Them Commute
“The rich are different from you and me.” F. Scott Fitzgerald Rich cities are different, too, but—like rich people—they have their own seemingly insoluble problems. It’s just that their problems are different. At first blush, less fortunate municipalities would beg for their issues. While every other…
Fickle Shades of Green
Making it in Real Estate (Part Seven): Fickle Shades of Green “Friendship is constant in all other things save in the office and affairs of love.” Shakespeare had it right. And money is less constant than love. Even if your project is profitable, the money that loved you when you first put together…
Size Matters
Making it in Real Estate (Part Six): Size Matters In the opening scene of Rosencrantz and Guildenstern are Dead, Rosencrantz correctly calls heads ninety-two times in a row in a coin-tossing game. While such luck is theoretically possible, Stoppard’s play is considered absurdist for an excellent reason.…
Bromancing the Deal
Making it in Real Estate (Part Five): Bromancing the Deal “I always act as our broker when we buy properties. That way I take the commission we save as my fee and it doesn’t cost my investors anything.” Except seeing good deals. In a dead heat with drunk-texting, this is among the worst mistakes a young…
The Bears of Crowdfunding
You don’t remember the name Timothy Treadwell, but you remember him. He was the free spirit who went to live among the grizzly bears in Alaska every summer for thirteen years. Despite countless warnings, Treadwell frolicked with these massive omnivores while foregoing precautions even the mildly sane…
Join the Crowd?
Revisiting Crowd Funding and Its Opportunities The crowd funded real estate (CFRE) industry is now a rush-hour subway car. Almost too numerous to list, the competitors in this nascent business appear as alike as bees in a hive. This won’t, however, be a long-term problem; just as there were over 1,800…
Specialize or Die
Making it in Real Estate Part Four: Specialize or Die A recent college graduate wrote, asking for advice. Mentioning how thrilled he was to be accepted into Marcus & Millichap’s training program, he wanted to know which area he should specialize in: land, apartments or industrial. I told him it didn’t…
Liquid Assets
I always wanted to make the front page of the Wall Street Journal…until I did. Today’s WSJ shows our Healdsburg shopping center doing an excellent imitation of McCovey Cove during a Giants game, replete with canoers and kayakers. This picturesque scene of course made the happy-talk news on local television…
Disrupting Charity?
“The poor you will always have with you, but you will not always have me.” Matthew 26:11 Once upon a time I thought the difference between philanthropy and charity was that between the Episcopalians and Catholics: zeros on the balance sheet. A million dollar bequest was philanthropy, ten bucks in…
When it’s Good for Everybody
The magnificent PBS series, The Roosevelts, aired about the same time as the release of yet another Federal Reserve report. Considered together, the two prove one thing: Franklin Roosevelt couldn’t get elected hall monitor today. FDR’s New Deal is impossibly left in today’s world of wedge politics,…
Playing Small Ball
Making it in Real Estate Part Three: Playing Small Ball “I hit big or I miss big. I like to live as big as I can.” A winning formula for the greatest baseball player ever, but unless you’re determined to become real estate’s Babe Ruth, you might consider following in someone else’s spikes. Mortals make…
Goodbye Yellow Cab Road
If you’re a nostalgia fan, nail a selfie in front of a Yellow Cab because in a few years the only place you’ll find one is Guatemala City. I took Uber to SFO this week. Including the tip, it cost $41. The driver, a young Korean woman studying at [San Francisco] State, spoke excellent English and her…
Doing it on the Side
Making it in Real Estate Part Two: Doing it on the Side Are we in the wrong business? On the “Best Jobs in America” lists, a career in real estate rates lower than carjacking. In fact, commercial real estate doesn’t rate at all on these ubiquitous lists. The closest we come is “real estate agent,” a…
Making it in Real Estate
Full version of this video can be seen HERE. Part One: Quit your Job? Over a beer last week, a young friend recounted his progress with a retail development firm. I was surprised to hear how much he had learned and how much responsibility he already had. When he explained his lead role on a mixed-use…
House of Tax Breaks
Urban myth says the family of a condemned man in China must pay for the bullet that executes him. In America, we actually do buy the bullets for executions. Through tax breaks and a lack of regulation, we are handing Tech the golden bullets it needs to assassinate bricks & mortar business. Three “tech”…
McNellis on Crimeless Victims & Tyranny in Palo Alto
In this month’s McCutcheon case, a compassionate Supreme Court restored the civil rights of the wealthiest 1,000 political donors in America, namely their First Amendment right to buy elections. In a split decision, the 5 republican-appointed justices sided with the conservative appellant (and the Republican…
Don’t Cry for Argentina
Confucius has been mistranslated for 2500 years. The master didn’t really say, “When prosperity comes, do not use all of it.” The correct translation is, “Never buy a second home.” Either way, his wisdom has been forgotten by the modern world. People mortgage their prosperity a week before it arrives…
ePup
Time to throw the internet a bone. And maybe a handful of Kibble. In recent months, this column has questioned the use of crowdsourcing for home delivery of groceries and dismissed outright the concept of crowdfunding real estate deals. Rather than chart another example of the internet’s figurative…
A Great Year to Unload Crap
There are bad ideas—say, ordering spaghetti on a first date. And there are worse ideas, like telling someone what you really think of his fiancée. And then there are truly terrible ideas, like oh say, budget skydiving. Yet the idea of investing in real estate through crowdfunding is in a class all by…
McNellis on Amazon’s Global Designs
John Goodman pitched his new series, Alpha House, on The Daily Show last week. Ordinarily, a talk show guest selling his wares is about as newsworthy as government incompetence. But this had a twist. Alpha House is Amazon’s latest venture—original content for the Web. In the actor’s words, the show…
Bankrupt Values
Fresh & Easy, a supermarket chain of 200 stores, filed for bankruptcy last week. Unlike most bankrupts, F&E has no third party debts, no fraying lines of credit and neither hounding banks nor outraged bond holders. Why? Because F&E is a division of the world’s third largest—and second most profitable—retailer,…
McNellis Shines Sunlight on Solar
Solar power and fishing share the same sparkle: Like fish in the sea, sunlight is free. But just as a handful of “free” salmon caught outside the Golden Gate might easily cost $200 a fish to actually catch, converting sunlight to power remains about as economic as fishing from an aircraft carrier. We…
Lawyers’ Labors Lost
Lawyers are losing ground, perhaps faster than many of us realize. According to CBRE Group Inc.’s most recent San Francisco office leasing survey, law firms gave up 50,000 square feet in the first half of 2013. This is not the only canary in the legal coal mine. Parts of the story are well known: Nationally,…
Partying Like It’s 1999
Instacart, a San Francisco start-up, announced it had received $8.5 million in institutional funding last week. The company is a same-day home-delivery service for groceries. Given that delivery boys represent perhaps the world’s third-oldest profession, why would anyone invest in such a decidedly low-tech…
Pounded by Junk
Retailer Restoration Hardware sent me a glossy, shrink-wrapped brochure—junk mail—so heavy I had to weigh it. Addressed to “Occupant,” my postal nickname, the package tipped the scales at six-and-a-half pounds. Gym rats do exercises with less than that; newborns can weigh less than six-and-a-half pounds.…
Real Estate Safe As Milk
Two old guys are sunning themselves on a Miami park bench, the first bragging about the $5 million his insurance company paid him after his building burned. In reply, the second retiree mentions the $15 million he was paid after a flood destroyed his building. The first man purses his lips, is quiet…
Desperately Chasing Yield
To paraphrase a vulgar aphorism, self-delusions are like opinions—everybody has one. Some have many. Self-delusions are sometimes tragic—consider the starving anorexic who considers herself fat. Occasionally they are merely sad—picture the badly aging athlete certain he is good for another season. And…
A Delight of Developers
One of the more amusing ways the Brits keep their societal distinctions crisp is through the upper class’s use of outlandishly imaginative group names for the animal kingdom. Describe a bunch of cawing black birds as anything other than a “murder of crows,” and bang, you’re either Cockney or another…
Rosy Predictions for the New Year
Just as there are few atheists in foxholes, true pessimists are rare among developers. A portrait of a famous developer next to the phrase “irrational exuberance” in the dictionary would surprise no one. Given that this is a developer-written column, bear this in mind when considering the following…
Abusing Power
Just as historians still question the precise date the Romans became the Italians, developers are by no means in agreement as to exactly when every pothole or ditch that could hold rainwater for a week became a protected “wetland.” While grading on our latest project finally started last week, this…
On Private Equity and Real Estate
“Behind every great fortune lies a great crime,” Honore de Balzac, the French novelist, supposedly claimed. While this may be true in France, (besides the tactical retreat, what French innovation has withstood the test of time?) America is surely different. Many of its great fortunes are rooted in nothing more insidious than [...]
The Chapter After Eleven
Put Mervyns, Blockbuster and Lassie together, and what do you have? Two dogs and a money-maker. If you own retail property, what did you have with Chevys Fresh Mex, Z Gallerie, Eddie Bauer, Avenue and Gottschalks? One project-sapping bankruptcy after the next. Before the mid-19th century, debtors unable…
To Everything There is a Season
The Bible’s book of Ecclesiastes tells of a time to every purpose under heaven. A time to rend and a time to sew. A time to kill and a time to heal. A time to scatter stones and a time to gather them together—a time for each endeavor in its turn. Ecclesiastes nailed this one for believers: The righteous…
Do As I Say, Not As I Do
Our last column ended with questions: Why would a seller ever permit a listing broker to keep 100 percent of a sales commission? Why let a broker eliminate a whole class of potential buyers: those who would never consider a property unless a trusted outside agent had been pitched it? Is it not possible…
Sex, Lies and Off-Market Deals
Jesus spent 40 days in the desert, eating nothing and resisting the devil’s temptations. Along a similar, if less biblical parallel, the Internal Revenue Service permits one 45 days to wander the wilderness in search of a 1031 exchange, all the while battling brokers’ blandishments. We just emerged…
Hazardous to Whom?
Trying to find an exchange property over the last 30 days has had us tire-kicking a passel of old shopping centers, a few worth the renovation. Each older center we examined more closely has a contamination issue, often surmountable, sometimes not. If you ever wonder why a great infill site remains…
Abandon All Hope
By John McNellis Hollywood has it wrong. Lawsuits very seldom right wrongs and, as often as not, taking a case to trial can nearly bankrupt one emotionally as well as financially. I was reminded of this enduring truth yet again when an old friend stopped by my office recently to discuss a lawsuit that…
McNellis on Spring Rituals: A Full Accounting
February 1, 2012
Like daffodils, if not quite as lovely, accountants are among the earliest signs of spring. When ours called the other day to ask for details about a new partnership, I noticed the days were indeed growing longer.
McNellis on Developers and Contractors: General Relativity
With major construction about to blossom all over the Bay Area—campuses for Salesforce, Google and Apple, the Transbay Transit Center and an armada of other projects—this may be just the moment to consider the general contractor and the contractor’s role in real estate.
McNellis on Governance: Rescue Our Horse
The annual meeting of America’s foremost real estate organization, the Urban Land Institute, took place last week in Los Angeles.
A Sod Roof Too Far
In addition to sounding tres sophistiques, the word triage embodies a very reasonable concept.
Monogamy and Its Downside
Bankers like exclusivity, but developers should be less enamored.
Let Us Now Praise Famous Architects
And let us remind not-so-famous developers to seek business counsel elsewhere.
San Francisco: Taxing Vacant Housing
San Francisco voters will vote on fourteen separate local ballot measures on November 8th, among them a proposed tax on empty housing. If history is any indicator, two-thirds of these measures will pass. San Franciscans have been harried by 137 city propositions since 2010, approving nearly 70 percent…
A Deal Runs Through It
Fishing for deals proves to be a popular sport across the country.
March Madness
While St. Patrick may have driven the snakes out of Ireland all by himself, it took a team effort—a global economic collapse actually—to clear out the ICSC's annual retail conference here on St. Patrick’s Day.
News
McNellis Wins Rebuilding Together Volunteer of the Year Award
The Wollenberg Award is presented annually to those who provided extraordinary resources and leadership to Rebuilding Together Peninsula. The 2013-2014 award is proudly presented to Martin Screen Shop and John E. McNellis.
McNellis supports local non-profit
A September 2012 article about the Downtown Streets Team in The Palo Alto Weekly
Its All About the Deal: John McNellis Gives Insight to Development Success
An article from the ULI San Francisco Blog about John McNellis' unique perspective on starting a development company
Council adds more commercial space to Alma Plaza
Developer John McNellis agrees to swap another house for more commercial footage and larger grocery store.
A Convenience Center in an Inconvenient Spot
John writes a guest opinion column about The Alma Plaza project.
A Growing Tradition
An article from Reed College's newletter about the increase in Parent Giving.