Category Archives: Property

Economy Property

The High Desert Single Family Market Appears To Be Stabling

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By Ronald J. Barbieri, Ph.D., CPA & Bob Thompson

For each month during 2004 and 2005, an average of 600 new homes were completed and sold; and an additional 500 to 600 previously owned homes were also purchased. The vacancy level for housing was low; and builders were not able to deliver homes fast enough. The median price for previously owned Single Family homes peaked in February 2006 at $322,000. In March 2012 the median home price in the High Desert for the Victor Valley Area was $110,000. Home prices have declined 65% from the peak. Over the last year the median home price increased by only $79 with home prices fluctuating between $106,000 and $112,700; consequently home prices today are statistically the same as they were a year ago. The table below published by Bob Thompson is the Market Condition Report for March 2012.

Home prices in the High Desert and elsewhere have probably been stable because Fannie Mae, Freddy Mac and the FHA along with some of the major financial institutions appear to be controlling the number of homes they release for sale in order to keep home prices from declining substantially from current levels. Some economists believe that an additional 15% to 20% decline in home prices across the United States would substantially weaken the financial strength of banks and cause undue hardship to many homeowners. If in fact these institutions have elected to carry the homes in their portfolios rather than dumping the units on the market, they are probably implementing a constructive policy given the current state of the economy.

During 2004 and 2005 the number of outstanding listings averaged 2,500, which represented four to five months of sales. As of February 2012 there were only 1,063 homes listed for sale in the Victor Valley area.An average of 477 homes was sold each month. Hence the number of listings on the Victor Valley MLS represents slightly more than a two month supply. Also, a review of the second page of the Market Condition Report would reveal that only 209 REO homes were listed for sale at the end of March, which is less than the 224 units sold in that month. For whatever reason, the financial institutions are not listing homes that they acquired through foreclosure, even though some real estate agents claim more homes could have been sold if more properties had been listed.

REO and Short Sales accounted for 67% of the transactions in February 2012.This is down from 74% a year earlier.This is a positive trend because it indicates properties that were foreclosed on represent a declining portion of the sales activity. Many of the buyers were investors who rather than owner occupants renovate the homes and either resell the units; or lease them to renters who are not able to purchase a home. The demand for Single Family homes has been artificially increased because of policies of the Federal Government.Interest rates are extremely low and down payments could be substantially below 20% of the purchase price. Individuals are purchasing homes in the High Desert with as little as 3% down. On the other hand, the underwriting criteria and documentation requirements are far more rigorous and extensive than normal; and the requirements for home appraisals tend to place a downward pressure on home prices. The effect of all this is to make home prices in the High Desert the most affordable in Southern California.

Many individuals want to know when the construction level for Single Family homes will begin to rebound. Some analysts believe the rebound could begin in earnest as early as 2014 while others believe it will be another seven years before new home construction reaches 3,000 units per year or 40% of the peak volume of the last real estate cycle.

The construction of Single Family homes will ramp up when the excess vacancy in the High Desert and the Inland Empire is absorbed due to an increase in household formations. There are 2,000,000 to 2,500,000 excess vacant housing units in the United States, which are defined as the number of vacant units in excess of normal vacancy levels for a market area. The normal vacancy level for Los Angeles County is approximately 3.5%, whereas the normal vacancy level for the High Desert is around 5%. There are an estimated 40,000 to 70,000 excess vacant housing units in the Inland Empire and between 5,000 and 7,000 excess vacant units in the High Desert.These are not very precise estimates, but they do provide a sense of the overbuilding that occurred during the last housing bubble.

The Inland Empire and the High Desert housing markets will be in equilibrium when these excess units are occupied, as a result of household formations.The number of households in the Inland Empire and the High Desert is expected to increase because of population growth, driven by the formation of jobs and an increase in the number of retired people.Many real estate analysts and economists estimate it will take another five years before the excess of vacant housing units are absorbed. There are an estimated 150,000 jobs in the Inland Empire previously lost in the Great Recession that still have to be replaced.

When the excess vacancy is absorbed home prices are expected to increase to the replacement costs for new homes. Home builders will only build new homes if they think they can sell the units for more than their costs to build and earn a normal profit for their effort. This could result in home prices in the High Desert increasing between $50,000 and $70,000 per unit from current levels.This would only occur if the U.S. and California economies continue to expand, creating jobs that could support population growth and substantial household formations in the High Desert. The good news is that the population of the High Desert appears to be almost stable over the last three years, and the U.S. Census Bureau estimates the population of California increased by 439,000 during the 15 months following the 2010 Census. This is discussed in another article on population in this Bradco High Desert Report.

Economy Property

The Demand for Industrial Space in the High Desert and Inland Empire has Increased Substantially Over the Last Two Years

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By Ronald J. Barbieri Ph.D, CPA

Approximately 12.4 million square feet of industrial space was absorbed into the Inland Empire in 2010 and 12.4 million SF were absorbed in the first 9 months of 2011. This bodes well for the High Desert, which also absorbed 430,000 square feet of space during the first three quarters of this year. In addition United Furniture Industries, a furniture manufacturer, signed a lease for 505,192 square feet at SCLA that will be reflected in the High Desert’s Net Absorption and Vacancy levels in the fourth quarter of 2011.

Overview

The demand for industrial, office, and retail space as well as residential units in the High Desert will be greatly influenced by changes in the occupancy of industrial space in the Inland Empire. The recent absorption of industrial space in Los Angeles Basin is expected to lead to more construction and a reduction in the limited supply of industrial land that could accommodate industrial facilities. A study by John Husing dated August 2008 determined there was only 4,860 acres of land in the Los Angeles Basin portion of the Inland Empire that could be developed for industrial use. This number could be significantly reduced over the next few years thereby reducing number of sites that are rail served or can accommodate the development of large industrial buildings. It will not be belong before the very large industrial tenants or firms that require rail will have to locate in the High Desert or in the area along the I-10 Freeway in Banning, California. This is expected to create more base employment in the High Desert, which could generate additional secondary employment and lower unemployment rates.

Also, the increase in demand for the housing, and commercial space in the High Desert correlates with the growth in base and secondary employment in the Inland Empire. An estimated 60,000 residents of the High Desert still commute to the Los Angeles Basin to work. These commuters represent the equivalent of base employment for the High Desert. The increase in the demand for industrial space in the Los Angeles Basin would lead to an expansion of secondary and total employment in the Inland Empire, which in turn would generate an increase in the demand for housing in the High Desert and retail sales. That would lead to more construction activity; and an increase in demand for small tenant industrial space.

Inland Empire

All the inventory, absorption, and construction information contained in this article was obtained from reports we generated from Costar. These numbers are deemed to be accurate by real estate industry standards; but they are not exact.

There is 496 million square feet (SF) of industrial space in the Inland Empire. This is equivalent to half the inventory of industrial space in the Greater Chicago area. Costar defines 478 million SF as Warehousing/Industrial space. The remaining 18 million SF is in smaller industrial flex space. The High Desert currently accounts for slightly over 4% of the total inventory; but in the intermediate term and beyond it is expected to be the primary future expansion area for industrial development in the region. Southern California is home to almost 2.0 billion SF of industrial space. Much of the increase demand for industrial space in the Inland Empire is attributed to firms relocating out of Los Angeles County in search of industrial sites on which to build larger, more efficient facilities.

The vacancy rate for warehousing/industrial space in the Inland Empire has increased from 5.2% at the end of 2004 to 12.2% by the end of 2009. The increase in vacancy was the result of overbuilding rather than a decline in industrial demand. The vacancy rate at the end of the Third Quarter 2011 declined to 7.9%. Very little inventory was added in 2010 and 2011; but there was a substantial absorption of large box industrial space during that two year period.

In calendar year 2007 the net absorption of industrial space peaked at almost 27 million SF. In 2008 industrial demand increase by 4.6 million SF; but in 2009 the net absorption was a negative 700,000 SF. Net absorption in the Inland Empire was a positive 12.4 million SF in 2010 and 12.4 million SF through the first nine months of this year. A portion of the increase in net absorption was caused by the acceleration of demand due to relatively low rents compared to prior years. According to Costar, quoted rents for warehousing space peaked in 2007 at $6.13 per SF per year. By 2011 the Quoted Rents declined to $4.65.

From 2005 through 2008 an average of 26.1 million SF of warehousing/industrial space was delivered annually in the Inland Empire. Deliveries declined to 7.0 million SF in 2009 and only 1.3 million SF has been delivered from January 2010 through September 2011. This limited level of construction coupled with the unanticipated increase in absorption has resulted in the elimination of half of the excess vacancy in the market place.

The vacancy level was 21.9 million at the end of 2005. It peaked at 57.9 million SF by the end of 2009. As of the end of the 3rd quarter 2011 it had declined to 35.7 million SF. There is still an estimated 10 to 15 million SF of excess vacant space in the Inland Empire; but the industrial agents in the Los Angeles Basin are now reporting excess demand (no vacancy) for buildings of 500,000 SF and larger. Most of the vacancy is in the medium and smaller size buildings often occupied by small businesses that have not experienced much growth since the Great Recession.

Industrial real estate agents are now suggesting there will be a new wave of construction for buildings larger than 500,000 Square Feet. When this is coupled with the fact there are only 4 sites in the Los Angeles Basin that can accommodate a building greater than 800,000 SF it is logical to conclude it will not be long before the High Desert will be able to successfully compete for the larger warehousing and distribution tenants. A higher level of industrial development will happen in the High Desert; though the timing is uncertain and unfortunately very much a function of public policy that will be determined in Washington and in Sacramento, California.

High Desert

To some extent the industrial markets in the High Desert have tracked the industrial activity in the Los Angeles Basin. As of the end of 2006 there was 17.0 million SF of industrial space in the five city area of Adelanto, Apple Valley, Barstow, Hesperia, and Victorville. Over the following 3-1/2 years the inventory of industrial space increased by 3.6 million SF. By the end of the 2nd quarter 2010 there was 20.7 million SF of industrial space in the High Desert. A substantial portions of the additions occurred at SCLA, though most of the cities participated in expansion. From the 3rd quarter of 2010 through the end of the 3rd quarter 2011 the few additions to inventory that were offset by the demolitions of older buildings. By the end of the 3rd quarter 2011 the inventory of industrial space was virtually unchanged at 20.7 million SF.

At the end of 2007 the vacancy rate was 4.1%. It climbed to 12.3% by the summer of 2009 due to delivery of the industrial space substantially in excess of absorption. Thereafter the vacancy rate fluctuated between 10.4% and 11.4%, peaking in the 1st quarter 2011. Recent leasing activity reduced the vacancy rate to 8.4% and it will be reduced even further due to a recently executed lease that will be reflected in this year’s 4th quarter’s absorption.

The following graph summaries net absorption, amount of space delivered and the vacancy levels for the industrial market in the High Desert in half year periods from the beginning of 2007 through the September 2011. From the beginning of 2007 through the 4th quarter 2008 the net absorption of the High Desert was slightly less than 1.3 million SF. During the second half of 2009 the High Desert experienced a decline in industrial demand of 107,200 SF. The net absorption in the 4th quarter 2009 and the 1st quarter of 2010 exceeded 1,100,000 SF. Dr. Pepper moved into their new facility at SCLA and the company that supplies containers to Dr. Pepper leased almost 300,000 SF of space in a nearby existing building. The net absorption in 3rd quarter 2011 was 632,000 SF; and another 506,000 SF was leased in September and will be occupied by the tenant in December of this year. A confectionary company took delivery of 495,000 SF of space in the western portion of the existing 1 million SF building at SCLA. Church & Dwight has taken over the 200,000 SF of industrial space the confectionary company vacated in the City of Victorville for the production of cat litter material. In September, United Furniture Industries leased the remaining 505,000 SF in the eastern portion of the existing building at SCLA. Joseph W. Brady of The Bradco Companies, publisher of this Bradco High Desert Report, represented the tenant. Jay Dick, Darla Longo and Mark Latimer of CBRE represented Sterling Capital Investments. This was the largest square footage lease ever brokered in the High Desert.

The graph depicts the distribution of 2.7 million SF that was delivered in 2007 and 2008. Another 860,000 SF was delivered and occupied in the first half of 2010. Only a limited amount of space was delivered since June 2010.

The vacancy level increased from 739,000 SF at the end of 2007 to 2,446,000 SF at the end of June 2009. As of the end of the 3rd quarter 2011, the vacancy level had declined to 1,755,000 SF; of which 505,000 SF had already been leased.

There are two different classes of industrial tenants and users in the High Desert. One class consists of the large box users. They typically are warehousing and distribution firms such as Wal-Mart in the Town of Apple Valley or large manufacturing operations, such as Northwest Pipe in Adelanto. Such companies usually occupy buildings in excess of 50,000 SF. The other class consists of smaller manufacturing or distribution firms that for the most part cater to the local population and businesses or are niche manufacturing players in the regional market. They are typically small space users that occupy single or multi-tenant buildings of 50,000 SF or less. A significant number of such tenants were involved with the construction industry.

The graph below categorizes the industrial inventory in the High Desert by city as well as by whether or not the structures are greater than 50,000 SF. It also segregates the industrial space in the City of Victorville into the inventory at SCLA and the non-SCLA portion of the city. Of the 20.7 million SF of industrial inventory in the High Desert, 8.5 million SF is associated with buildings of 50,000 SF or less. The remaining 12.2 million SF is in buildings greater than 50,000 SF. The City of Victorville has almost 8.6 million SF of industrial space, of which 4.5 million SF is located at SCLA. The balance of 4.1 million SF is in the Foxborough Industrial Park, which the city developed and in several other industrial sub-markets throughout its incorporated area. The City of Hesperia is home to 4.5 million SF of industrial inventory, much of which is in the older industrial area north of Main Street between the railroad tracks and I Street. Adelanto accounts for 3.5 million SF while the Town of Apple Valley has 2.8 million SF. Barstow has almost 1.4 million SF of industrial space.

Approximately 58.9% of the industrial floor area of the High Desert is in structures greater than 50,000 SF. The remaining 41.1% is in buildings that have a Rentable Building Area (RBA) of 50,000 SF or less. The distribution of industrial space between smaller and larger buildings varies by city. In Adelanto, 39.5% of the inventory is in larger buildings. In the Town of Apple Valley 65.5% is in structures greater than 50,000 SF. The 1.25 million SF Wal-Mart Distribution Center accounts for most of the large building inventory in that city.

Only 45.4% of Barstow’s inventory is in larger buildings. Hesperia is the city of smaller industrial buildings, with only 61.7% in smaller structures. Just over 89% of the industrial buildings at SCLA is greater than 50,000 SF, while 65.0% of the rest of Victorville is in larger structures. Over 60% of Adelanto’s industrial Inventory is in smaller buildings, many of which are located in one of its five industrial parks; the city developed 25 years ago. It is anticipated that a substantially greater percentage of the growth will be in structures greater than 50,000 SF. Many of these structures are likely to be warehousing and distribution facilities.

As of the end of the 3rd Quarter 2011, there was 613,000 SF of vacant space in the smaller industrial buildings. The largest amount was in the City of Adelanto, followed by the non-SCLA area of the City of Victorville. There was no vacancy in the less than 50,000 SF buildings at SCLA. The small building vacancy levels in the Town of Apple Valley and the cities of Barstow and Hesperia ranged from 62,000 to 107,000 SF. The vacancy level in larger buildings in the High Desert as of September 30, 2011 was 1,124,000 SF. SCLA accounted for 625,000 SF of which 505,000 SF was in one building and it has already been leased. Barstow had over 255,000 SF in two industrial buildings on Lenwood Road. Adelanto accounted for 105,000 and Hesperia had approximately 201,000 SF of vacant space while the Town of Apple Valley and the non SCLA areas of Victorville did not have any vacant space in the larger facilities. When all buildings are considered the City of Adelanto has the highest vacancy level at 346,000 SF followed by Hesperia at 308,000 SF. SCLA only has 119,000 SF of available space after accounting for the recently executed lease.

As of September 30, 2011, the vacancy rate in the High Desert for buildings 50,000 SF or less was 7.2%, while for larger buildings it was 9.2%. The City of Barstow had the highest vacancy rate for buildings over 50,000 SF. It was 30.7%. The vacancy rate for the smaller buildings in Barstow was 8.2%. The non SCLA portion of Victorville had a 9.1% vacancy rate in the smaller buildings; but none in the larger structures. In the Town of Apple Valley there was no vacancy in the larger buildings but the rate for the smaller buildings was 7.4%. The smaller buildings in the City of Adelanto had a vacancy rate of 11.5% while the larger buildings reached 7.7%. The vacancy rate for smaller buildings in the City of Hesperia was 3.8% compared to 11.7% for larger buildings. For an area the size of the High Desert the stabilized vacancy rate is approximately 5% provided the demand for industrial space is expanding.

During the first 9 months of 2011, the High Desert experienced a net absorption of 430,000 SF. SCLA accounted for 536,000 SF, all of which was in the larger industrial buildings. The City of Adelanto lost 161,000 in industrial demand of which 105,000 SF of the negative absorption was associated with larger buildings. During the same period the Town of Apple Valley had a net absorption of 29,331 SF, almost evenly split between smaller and larger sized buildings. The City of Hesperia absorbed over 26,000 SF; but more than 22,000 SF were in smaller buildings. City of Barstow experienced approximately 10,000 SF of negative absorption, all in smaller buildings, while the non SCLA portion of the City of Victorville recorded 9,100 SF of positive absorption.

Only three industrial buildings totaling 25,372 SF were delivered in the High Desert during the first three quarters of 2011. As of September 30, 2011, there was only one industrial building under construction in the area. It is a 49,672 SF reinforced concrete building located in the City of Hesperia. The building is scheduled to be delivered to the Victor Valley Transit Authority in November 2011. With the exception of the 860,000 SF Dr. Pepper’s Building delivered in the 1st Quarter of 2010, there has been little new industrial space delivered in the High Desert since 2008. This has enabled the large box industrial market in the High Desert to trend towards equilibrium; but there does not appear a need to build any speculative large box space at the present time. The negative absorption in industrial buildings of 50,000 SF of less argues against any speculative development in this size range.

According to the latest Costar survey, quoted NNN monthly rents in the High Desert declined from $0.58 per SF as late as the 3rd quarter 2009 to $0.37 per SF in the 3rd quarter 2011. Effective rents are significantly less; and antidotal evidence suggests both could continue to decline. In the Inland Empire quoted yearly NNN rents for warehousing and industrial space declined from $6.13 per SF in 2007 to $4.59 in the 4th quarter 2010. They have rebounded slightly to $4.69 per SF in the 2nd quarter 2011. Some industrial agents in the Inland Empire have indicated the effective rents have increase more than the quoted rents since the end of 2010.

Outlook

Short and medium term outlooks for the industrial markets in the High Desert are uncertain because the economic forecasts for the United States and California are greatly impacted by assumptions regarding political decisions made at the national and state level as well as in China and Europe. A majority of economists now believe that at best the U.S. economy will expand at an average of only 2% per year for the next few years. The economic forecasters are assigning a 30% chance that the economy will slide into a recession within the next year even if the level of deficit spending continues at current levels in the United States. Contributing factors may include: (1) a material decline in U.S. home prices that would adversely impact the equity reserves of U.S. banks and their ability to lend; (2) A sovereign default on Euro debt by Greece or other countries in Europe that would significantly reduce the equity reserves of European financial institutions, thereby impeding their ability to make loans; (3) the economic slowdown in China becomes greater than intended by its government so that China imports less goods from the U.S. and Europe; and (4) households and business in the U.S. increase their rate of savings and consume less or invest less in their business because they become more pessimistic regarding the economic outlook.

Between now and the elections of 2012, there is not likely to be any significant change in public policy at the federal level. Depending on which party gets their candidate elected president and which party controls the Congress and the Senate there could be a substantial increase in government spending, higher taxes, substantial increases in debt and more government regulation; or there could be less government, taxes, deficit spending, and regulation. The former would have a negative impact on economic growth while the latter could revive the U.S. economy especially if it allowed the private sector to aggressively drill for oil and gas throughout the United States. Within 10 years the nation could go from importing $400 billion of oil in a year to actually be a net exporter of gas and oil, while adopting conservation programs that reduced the consumption of fossil fuels. Of course, if one party controls the Senate or Congress and another controls the presidency then it will likely lead to more of the status quo; which would not result in much economic growth. Even if the Republican Party gained complete control of the U.S. government it is not certain that they would adopt the policies necessary to get the economy out of its doldrums. The State of California will not be able to significantly change any current public policies before November 2014 when a new governor could be elected.

In spite of all the political and economic uncertainty the big box industrial market in the High Desert is likely to add one or more users each year for the next few years before the increase in demand accelerates in the second half of this decade. This will probably be the case because large industrial users will continue to relocate from Los Angeles County to the Inland Empire in order to build larger, more efficient facilities. As the availability of large industrial sites in the Inland Empire diminishes those seeking larger sites will have no choice but to locate in the area of Banning, California or in the High Desert. Only an economic depression would defer this from happening.

We do not expect any substantial positive Net Absorption for smaller industrial buildings in the High Desert until small businesses in the United States and in California begin to participate more in the economic expansion. This is not likely to occur before 2013; and then only if the more business friendly public policies are adopted. When residential construction in the High Desert experiences a substantial rebound it will also add to demand for industrial space in buildings 50,000 SF or less. Before this can occur it will be necessary for household formation in the Inland Empire to eliminate the excess of vacant housing units in both the Inland Empire and the High Desert. This would necessitate the replacement of most of the 175,000 jobs that were lost in the Inland Empire during the last recession. To date approximately 15,000 jobs have be added in the Inland Empire; hence a high level of residential construction is not likely to occur much before 2015.

Economy General Property

Victor Valley Housing and BIA Efforts Hold Keys to Recovery

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By Carlos Rodriguez
CEO Building Industry Association Baldy View Chapter

Residential construction in the Victor Valley and along the I-15 corridor cities leading to the region holds the key to San Bernardino County’s economic recovery, and the Building Industry Association (BIA) Baldy View Chapter is launching a program to ensure it happens.

According to figures released by the Construction Industry Research Board (CIRB) and compiled by the Chapter, “the Victor Valley and I-15 corridor continues to anchor our recovery and will provide the gateway to prosperity,” said BIA Baldy View President Jonathan Weldy of Meridian Land Development.

“In 2010, the four incorporated Victor Valley cities of Hesperia, Adelanto, Apple Valley, Victorville and unincorporated county areas in their spheres of influence accounted for over 40 percent of the 1,844 single – and multi – family permits issued in all of San Bernardino County in 2010,” Weldy said.

To ensure this recovery, the BIA Baldy View Chapter launched its own recovery strategy: the BIA Baldy View Jobs Creation Initiative – Keys to Restoring the Health of the Building Industry and our Region’s economy.

“When added to the total of the I-15 corridor cities of Ontario, Rancho Cucamonga, and Fontana in the Inland Valley, nearly 70 percent of the building in San Bernardino County took place along this important corridor in 2010 in a trend that has continued since 2005”.

While over one third of all the permits issued in the county were for multi-family uses, nearly 90 percent of the permits issued in the Victor Valley region were for single – family homes and over half of the 2010 single – family permits issued in the entire county last year were issued in the Victor Valley.

Weldy said the Chapter’s Job creation Initiative’s four – tiered approach incorporates a continued push for development impact fee (DIF) reductions, deferring  DIF payments to issuance pf a certificate of occupancy (particularly in school districts), implementing a lien policy regarding performance bonds in cities that have not adopted the ordinance and monitoring the implementation of SB375 – a land -use planning bill that aims to reduce greenhouse gas emissions through the reduction of vehicle miles traveled (VMTs) – in coordination with Southern California Associated Governments (SCAG) and San Bernardino Associated Governments (SANBAG).

“The importance of the Chapter’s Jobs Creation Initiative is that the current downturn imposes contradictory challenges on governments to the seemingly obvious approach to spurring economic recovery by encouraging homebuilding,” said former BIA Baldy View Chapter President Todd Tatum of the Victorville – based American Housing Group.

“Local governments faced with critical shortfalls and deficits resist considering or implementing fee reductions when projecting their budgets,” Tatum said. Yet, “I think now cities and city staffs realize that what homebuilding brought to the city in terms of overall community development: major employment, tax revenue streams, infrastructure, parks and libraries,” he added.

” They realize homebuilders are really the drivers of the economy.”

Because a decade – long shortfall of new housing fueled both the housing boom and bust earlier in the decade, revitalizing the housing market holds the key to economic recovery in the region and the state, according to noted economist John E. Husing, Ph.D., of Economics & Politics, Inc., in his 2009 report The Housing Crisis Issues & Potential Strategies.

Fundamentally, the Inland Empire has moved into a deepening recession because of what has occurred in its residential market,” said Husing.

According to the report, housing demand outstripped supply, fulfilling the classic definition of inflation as ‘too many dollars following too few products.’ Husing notes that the ratio of residents to single – family dwelling units was 4.66 as the region recovered from the post – Cold War recession in 1997. However, over the intervening decade, 5.71 people were added for each new single – family unit built during that period.

“To keep the ratio intact at 4.66, another 156,700 units would have had to have been built or 15,670 per year in this ten year period. San Bernardino over that period fell short by nearly 30,000 units,” he added.

The region’s recovery now hinges on “a resumption of residential construction activity,” Husing said. This is the case as the Inland Empire’s competitive advantages are the availability of land that can support new homes and industrial facilities as well as a large marginally educated adult population.

“In the meantime, new home development will stagnate and the recession will persist, unless policy action is undertaken to make home building profitable,” he added.

“And profitability is one of the major issues confronting homebuilders,” said BIA Baldy View Vice President Todd Leibl of Victory Homes. “Current inventories of repossessed homes, short sales, and distressed properties continue to hamstring investment in homebuilding by keeping prices artificially low.” However, he added, “as inventories are liquidated prices should return to reasonable levels.”

“Once that happens,” said Leibl, “we’ll be back in the building business.”

In addition, local governments need to adjust their fee structures to the realities of the current housing market and create incentives for homebuilding, local governments under pressure to maintain staffing levels and entitlement programs.

“The BIA has made an extreme effort with the Jobs Creation Initiative, but you have to have a government that wants to understand the issues and have the ability to make those changes,” Leibl said.

To make housing profitable, Husing recommends steps mirroring the Chapter’s Initiative, such as reducing DIFs while encouraging public policies that enable more compact and affordable housing and new home community designs consistent with the goals of SB375. With these programs in place, San Bernardino County will be positioned for return to prosperity.

The BIA Baldy View Chapter represents homebuilders and associates in the housing industry in all of San Bernardino County and the easternmost portion of Los Angeles County. Founded in 1938, the Baldy View Chapter is the most honored homebuilding chapter in the nation. It is a member of the California Building Association (CBIA), a statewide trade association representing nearly 6,000 businesses including homebuilders,remodelers, subcontractors, architects, engineers, designers, and other industry professionals.

 

If you would like to receive the full edition of the Bradco High Desert Report, our quarterly newsletter, please click on the link: http://www.thebradcocompanies.com/register

Property

The BIA: Reigniting Recovery for the Epicenter of Affordability

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By James L. Previti of Frontier Homes
President, BIA Baldy View Chapter

During the great building boom earlier in the decade, the four Victor Valley incorporated cities of Victorville, Hesperia, Adelanto and Apple Valley accounted for well over a third of the 45,376 single and multi – family permits issued by the 24 incorporated cities and 59 unincorporated communities of San Bernardino County between 2005 and July of 2010. For the overall High Desert, that figure is considerably higher when factoring the over 6,000 total permits issued by the County of San Bernardino chiefly for High Desert cities is considered.

So returning homebuilding and the prosperity it generates to the High Desert to anchor the recovery in San Bernardino County has been a key focus of the Building Industry Association (BIA) Baldy View Chapter as the High Desert will continue to be the epicenter of affordability for Southern California home buyers.

“This is once again going to be the most affordable region in Southern California,” said BIA Baldy View Chapter Past President Todd Tatum of the Victorville – based American Housing Group.

“When the economy does turn around, home building will come roaring back up here.”

According to the most recent data, the prognosis for High Desert recovery is “slightly better than guarded optimism,” added Russ Valone of MarketPointe Realty Advisors.

Even now, “The Victor Valley is starting to pick back up and increase its market share again.”

While this year’s building activity countywide was slightly diminished by unexpected rainfall and the expiration of state and federal tax credits that buttressed the 2009 housing market, a panel of home building experts also voiced cautious optimism for the housing market’s recovery at the BIA Baldy View Inland Empire Housing Outlook 2010 Mid – Year Update in Ontario in July.

Home builders “are starting to see a glimpse of hope,” said moderator Mark Baud of Real Estate Economics, citing a “glimmer of job gains that we think will continue through 2011”. These gains, he added, should be followed by year – over – year job growth which should begin in the first quarter of 2011 and steadily increase to the point where demand will meet supply by 2015.

Baud noted additional positive signs in the regional economy such as reductions in mortgage defaults and reduced inventories of distressed properties by banks, surpluses of which are estimated to be depleted by 2014 in the Inland Empire. Baud added that foreclosures are trending downward and contributing to a housing market recovering in “fits and starts.”

Most of the panel agreed that, despite the slow recovery, 2010 has been a good year to date with affordable homes attracting more first time homebuyers and increased traffic in new home communities. While new home designs are trending downwards in terms of size, a healthy market remains for larger, luxury homes in the upper end of the market.

Valone said new home sales doubled over last year at this time from 154 new home sales to 314 in the second half of 2010, because many home buyers responded to the final months of the federal tax credits. Skewing the figures though, is “how prices have moderated. In the first half of 2009, the average was $233,197 for 2,287 square feet. In the first half of 2010, we see that the price has dropped to about $195,000 for about 2,094 square feet” due to home builders creating smaller, more affordable products to meet the demands of emerging demographics and an aging population.

“Part of the drop that we saw in the first half of 2010 really occurred in the second quarter with more projects offering smaller square footages. The unit size got smaller and the price went down.”

Because the newer Victor Valley projects that are selling are “slowly creeping down” in both physical size and cost, “it seems as if we look at sales by size range, smaller units and more affordable units are really driving the price range.”

Another aspect changing the landscape of home building is the dramatic 50 percent drop in inventory levels to less than 2,800 products, he added. The result is that competition increases with builders offering significantly fewer alternatives for home buyers.

“Smaller phases, fewer actively selling subdivisions – this is making for a more competitive market place. A year ago there were 65 active subdivisions in the Victor Valley – now, that number has been cut in half,” Valone said.

“If we look back a year ago, 23 percent of active developments in the region were done by public builders – 15 out of 65 subdivisions. If we come back now and look, it’s eight out of 32 subdivisions. The number of subdivisions provided by public companies has decreased, but the percentage by publics has gone up from 23 to 25 percent. From a statistical standpoint, the drop in projects by publics is less than by private builders.”

In 2009, Valone cautioned home builders that price point realignment in closer – in or ‘down the hill’ submarkets such as Rialto/Fontana or Colton/San Bernardino offered more affordably priced products and could act as intercepts to inhibit homebuilding in the High Desert.

However, in 2010, some of those submarkets saw a little bit of price point increases – widening the gap and making the commute to Victor Valley more viable.

“In a sense,” Valone said, “some of the closer – in submarkets have started reversing the trend – offering bigger units while Victor Valley is starting to offer more affordable products, making the commute worthwhile”.

Over the course of the downturn, the BIA Baldy View Region has focused on mitigating many of the causes of the high cost of building that contributed directly to the downturn in the first place – particularly in pursuing the Chapter’s Housing Economic Stimulus Package that involves fee reductions, fee deferrals to the issuance of certificates of occupancy, and options to utilize liens as security for improvements in – lieu of construction bonds. The package has received local media support and resulted in reductions and deferrals of fees and streamlining of community development processes.

The chapter continues to coordinate with High Desert cities to implement phase – in programs to keep fees at reasonable levels until permit activity increases, successfully coordinated with County of San Bernardino to adjust user fees related to development in conjunction with the County budget pertaining to deposit amounts and costs for staff time. The Chapter also coordinated with the City of Victorville and the County of San Bernardino to create ordinances to replace construction bonds with liens on dormant projects.

“Given the reduction in prices over the past few years, realigning city and school district fees based on square footage rather than valuation is another issue homebuilders and local governments must address,” said Todd Leibl of Victory Homes.

“The percentage we pay for fees is too high for the homes. If I’m selling a home for $200,000 now, five years ago that home was worth $330,000 and I’m paying the same in fees. The fees haven’t come down and that’s a problem”.

“We have to get the cities and the school districts to reevaluate their fee structures with the development community,” added Leibl. “The earlier they come to the table, the faster we can solve the problem of building homes and putting people back to work. It’s all about jobs.”

“The silver lining of the housing market’s collapse nationwide may be the impact on the traditional adversarial relationship between the building industry and local governments,” Tatum said.

At the beginning of the downturn, city and county governments tended to view revenue streams created by homebuilding as budgetary mechanisms. Tatum added, “When homebuilding just stopped, it was hard to convince the cities that if they lower the fees they might get something in return.”

However, as the housing market correction lingered, local jurisdictions realized that encouraging home building by reducing and deferring fees and streamlining permitting processes could staunch the hemorrhage of jobs and revenue streams. “That understanding,” Tatum added, “bodes well for homebuilders when a full – fledged recovery begins.”

“I think they’re going to stick with us when the time comes.”

Tatum cautioned that private independent home builders continue to confront challenges with tighter credit markets.

“We’re not building any houses now because the price of land, the cost to build a house and added costs of fees doesn’t add all that together. The retail hasn’t hit a price point yet that allows us to build a house.”

“Larger public builders and well – capitalized private builders are still building in the High Desert, but in much reduced numbers,” he added. Until the credit market loosens up to enable smaller production firms to secure traditional construction loans, private builders are not going in to cash in on the boom when it starts – the big publics are going to own the market. The banks will not loosen up their lending standards until they’re forced to.

Laying the groundwork for that recovery has also created partnerships with local agencies to ensure key environmental issues are addressed to pave the road to recovery. In August, the BIA partnered with regional elected officials; and representatives from virtually every city and water agency in the county joined together to present the Fourth Annual San Bernardino County Water Conference in Ontario.

The BIA and sponsors brought together this diverse array of stakeholders to identify and implement long – range cutting – edge solutions that will ensure a reliable, sustainable long – term water supply to sustain and enhance our region’s quality of life.

Describing the event as creating “a growing base of collaboration” to confront issues and create a lasting impact on the region’s growth, General Manager Kirby Brill of the co – sponsoring Mojave Water District summed up the event as an example of the progress we have made.

“I don’t think this discussion could have taken place with this level of expertise and engagement four years ago.”