California Real Estate

To many of us, the apocalyptic summers of 2020 and 2021 feel like just yesterday — rolling power outages, orange skies and choking, smoky air. Unfortunately, it may be a preview of what’s to come this summer. After the driest winter on record in California, fire officials are worried. They are bracing for a tough wildfire season. Quick temperature check (sorry for the pun): 2021 was a record-setting fire year when a variety of factors (both natural and unnatural) came together to spark the unusual scale of disastrous fires. Still, last summer was a window into the future of fire if climate change continues at its current pace. According to state officials, unprecedented drought plus the extreme heat and wildfires expected this summer plus supply chain issues (hurting the growth of the solar industry) all adds up to “energy shortfalls” and high potential for power shutoffs this summer. We’re likely to have an energy shortfall that adds up to the peak amount of power needed to keep the lights and air conditioning on for about 1.3 million homes, according to the California Independent System Operator, the agency that manages the state’s energy grid. Drought and fire have always been facts of life in California. But research shows that the climate crisis is making both worse!  Droughts are becoming more frequent and more severe — the West in general is currently experiencing its driest period in 1,200 years. Here in California, the last three years have been our worst droughts. And drought is an all-too-familiar bedfellow of fire. The last ten years have brought more destructive wildfires than ever in our state’s recorded history. A big reason for that is us — we build in fire zones. And we’re affecting the natural climate: burning fossil fuels to power our homes and cars traps pollutants in the atmosphere, making temperatures hotter in general. All of that fuels a longer wildfire season and bigger fires. So with wildfires season (and the terrible killings in Uvalde, Texas) on our mind, let’s check the latest real estate news for Southern California…

New Single-Family Home Sales Dropped in April. No doubt about it, the Commerce Department’s report on the housing market is ugly. New home sales fell for the fourth month in a row in April, coming in below even the most pessimistic forecast by any economics group. At a 591,000 annualized rate, the sales pace in April was just 1.5% above the bottom set during the initial days of the COVID-19 pandemic exactly two years ago. The housing market is clearly struggling to find some footing so far in 2022 due to declining affordability. While rapidly rising prices have been an issue in the housing market throughout the COVID-19 pandemic, the recent run-up in borrowing costs has been adding to the burden as the Federal Reserve begins to tighten monetary policy. Assuming a 20% down payment, the rise in mortgage rates and home prices just since December amount to a 42% increase in monthly payments on a new 30-year mortgage for the median new home. No wonder new home sales posted the largest monthly decline in nine years in April. Also keep in mind that new home sales are a very timely barometer of the housing market because they are counted when the contract is signed rather than when the contract is closed, like with existing homes. That said, if the Federal Reserve is hoping to get housing inflation under control through higher interest rates, I would argue the progress has been slow. While median sales price growth has decelerated from a year-over-year a peak of 24.2% in August, prices were still up 19.6% in the twelve months ending in April. The main problem is still that buyers are stuck dealing with very few options when it comes to completed homes. It’s true that overall inventories have been rising recently and now sit at the highest level since 2008. This has pushed up the months’ supply (how long it would take to sell the current inventory at today’s sales pace) to 9.0 from a record low reading of 3.3 in mid-2020. However, almost all of this inventory gain is from homes where construction has either not yet started or is still underway. Doing a similar calculation with only completed homes on the market shows a months’ supply of a meager 0.8, near the lowest level on record back to 1999. The good news is that builders are ramping up construction activity to help meet demand, with the total number of single-family homes under construction currently at the highest levels since 2006. Ultimately, that added supply will facilitate more sales while slowing the pace of new home price appreciation. Despite the weak data, I don’t expect sales to stay at April’s level. Ultimately, the market will be able to weather the headwinds of higher mortgage rates in 2022, with sales of new homes only slightly down versus 2021.

Investor Interest in Commercial Properties Increased in 2021. Investor interest in the Los Angeles commercial real estate market was high in 2021 with an 83% year-over-year increase to $58 billion in sales volume for the year, according to data from CBRE Group. In fact, it was the leading commercial market in the U.S., followed by New York and Dallas. The $58 billion in investments seen in 2021 was far above pre-pandemic levels. In 2019, only $47 billion of commercial real estate traded hands in L.A. Mike Condon Jr., a vice chairman at Cushman & Wakefield Inc., agreed. “With L.A. being a gateway city and one of the most desirable and stable markets in the world, we’re seeing continued investor interest in the market, even during Covid.” Last year the commercial asset type that saw the most sales volume was industrial. Roughly $20.7 billion of industrial properties traded hands, compared with $18.5 billion of apartment buildings, $8.6 billion of office properties and $6.3 billion of retail properties, according to CBRE data. It’s no surprise industrial and multifamily are the darlings of the ball. Everyone wants to own them. In contrast, office sales last year were below pre-pandemic levels. “L.A. is one of the five national logistics hubs,” said Kevin Shannon, co-head of U.S. capital markets at Newmark Group Inc. “We’ve got the busiest ports in the country, the port of L.A. and the port of Long Beach. Multi-family remains strong,” We don’t have enough housing for the population and the barriers for getting entitlements remain prohibitive. There has been substantial rent growth in multifamily properties which is causing increased interest. Some retail that is trading now are redevelopment opportunities with investors expecting to tear down existing properties to make room for multifamily or industrial properties. International investors are also interested in L.A. because of the content creation, tech and life sciences jobs in the market. And experts agree that 2022 is poised to be a busy year for sales. The continuation of “content wars” is leading to high demand for studio space in markets like L.A. and he expects that to continue.

L.A. Just Banned Oil Drilling. Now Comes the Hard Part. In a city aiming to be carbon-neutral by 2035, neighborhood oil wells have become an increasingly incongruous element of the Los Angeles landscape. Did you know that over 600,000 Angelenos live within a half-mile of one of 1,000 active wells? And did you know a recent study demonstrated that toxic particulates can travel up to two-and-a-half miles, causing chronic respiratory issues and higher cancer rates?  Starting in 2013, the broad coalition of groups known as Stand Together Against Neighborhood Drilling (“STAND L.A.”) began a campaign under the slogan “No drilling where we’re living.” And last month (nearly a decade after the campaign began),  L.A. finally passed a motion to officially phase out oil and gas extraction. It’s a first step toward holding oil companies accountable for the damage they have inflicted upon L.A.’s most vulnerable neighborhoods for over a century. “It’s the vision that communities that are overwhelmingly Black and Latino and working class who have borne the brunt should actively have a role in shaping what their future will look like.” But the oil companies won’t quit drilling tomorrow. New drilling permits will stop being issued by the end of 2022, but oil companies may get up to a 20-year period to phase out siphoning fossil fuels out of the ground. That will mean not only properly plugging wells (including cleaning up 3,000 inactive drilling sites and another 1,000 abandoned wells located around the city), but also fully remediating the land. If the city can prove oil well operators have already recouped their initial investment, it may go faster. Culver City recently conducted a similar study for its oil wells and is requiring full remediation by 2026. Since 1892, L.A. has been dotted with oil wells, which lined up along beaches and sprouted out of backyards. But where drilling sites in wealthier neighborhoods have largely shut down over the last 25 years (a few continue to operate, cleverly camouflaged and with improved safety measures in place), many of the sites in lower-income communities have persisted in plain view. There’s still a lot of petroleum infrastructure left in L.A. County, and that means the hardest part comes next. The region is home to multiple refineries that pollute the same neighborhoods affected by oil drilling, and eventually they need to be removed.

14 California Cities Ranked Among Best Places to Live

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More than a dozen California cities were named among the nation’s 150 Best Places to Live, according to a new report by U.S. News & World Report. The 14 cities landed on the list mainly for their affordability and relatively clean air, which the report focused on more than job markets. The top-ranking city in California is San Jose at No. 5, which moved up from No. 36 in last year’s ranking. San Francisco was the second top ranking city, claiming No. 10. On the 2022 list, the California cities that made the ranking are:

* No. 5 – San Jose (2021 – No. 36)

* No. 10 – San Francisco (2021 – No. 15)

* No. 107 – San Diego (2021 – No. 97

* No. 122 – Sacramento (2021 – No. 98)

* No. 126 – Santa Barbara (2021 – No. 115)

* No. 128 – Los Angeles (2021 – No. 126)

* No. 132 – Santa Rosa (2021 – No. 121)

* No. 141 – Fresno (2021 – No. 136)

* No. 142 – Vallejo & Fairfield (2021 – No. 135)

* No. 144 – Salinas (2021 – No. 141)

* No. 146 – Modesto (2021 – No. 146)

* No. 147 – Bakersfield (2021 – No. 148)

* No. 148 – Visalia (2021 – No. 149)

* No. 149 – Stockton (2021 – No. 147)

The Alex Trebek Homeless Shelter Is Finally Open. He was one of Los Angeles’ most generous homeless advocates, although most people might not know it.  None other than god-tier Jeopardy! host Alex Trebek? This week, the Trebek Center, a new bridge shelter partially funded by him and his wife Jean, welcomed its first residents with 107 beds and comprehensive mental-health services. At the entrance to the center, which is managed by homeless-services provider Hope of the Valley, a video wall cleverly made to look like the Jeopardy! game board displays Trebek’s name alongside the names of other donors. A quote from the late host is painted on a mural along the building’s exterior: “Homeless people are not deadbeats or druggies or criminals. They are us. They are our neighbors.” Trebek’s commitment to tackling homelessness in L.A. was his quiet legacy. Just before he died in November 2020, Trebek donated the $500,000 that kick-started the fundraising for the $14 million shelter in Northridge, which is located in a 23,000-square-foot roller-skating rink that had shut down during the pandemic. It’s actually the second Hope of the Valley property to be funded by Trebek; he previously donated $100,000 to a North Hollywood facility where a community room bears his name. (He also gave generously to L.A. in other ways: In 1998, he donated a 62-acre parcel of land in the Hollywood Hills to create the hiking trails and wildlife habitat of the Trebek Open Space.) Shelters aren’t going to solve L.A.’s crisis on their own (the city still needs to focus on building permanent housing and expanding tenant protections), but Trebek’s desire to end homelessness went beyond simply making donations. The game-show host, who lived in Studio City for three decades [see story below], was an outspoken member of a community that wasn’t always so welcoming to the idea of housing homeless residents nearby. In this corner of the Valley in particular, there have been few permanent supportive-housing units built, largely due to opposition from neighbors. He was mortified by the attitudes of those who tried to fight proposed shelters. “I’m not one of those NIMBYs,” Trebek told ABC7 in 2020. “I’m not one of those people who thinks that we can’t deal with the homeless near my house because that’s bad. I wish more people would react in a positive way to reaching out and trying to help their fellow members of the community.” L.A.’s celebrities love to sign checks and tap the right hashtags onto their Instagram Stories, but few rally for transformational changes when they believe it might affect their property values or — gasp — neighborhood character. Trebek defied the caricature of the rich, out-of-touch Angeleno. This city needs more residents like him.

 

After practicing law for 35 years (specializing in real estate litigation), Lloyd Segal assumed the leadership of the Los Angeles County Real Estate Investors Association in 2017 from the late Phyllis Rockower. Lloyd is an author, real estate investor, mentor, public speaker, and LANDLORD. He is the also the author of four real estate reference books, including “Stop Foreclosure in California” (Nolo Press), “Stop Foreclosure Now” (American Management Association), “Foreclosure Investing” (Regency Books), and “Flipping Houses” (Regency Books). The Los Angeles County Real Estate Investors Association is the oldest (1996) and largest investor group in California. In his role as President, Lloyd is busy expanding LAC-REIA’s events and programs for members and real estate investors. For more information, visit www.LARealEstateInvestors.com.