California Bullish on Housing Despite Deficit, Obstacles
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LOS ANGELES-With a state budget deficit of $23 billion, eliminated redevelopment agencies, services cut across the board and reduced funding for school and social programs, one might say the financial situation in California is pretty grim. But the good news is that the state’s real estate industry is rallying despite the sluggish economy, say speakers at the recent Milken Institute Summit here titled, “California Real Estate: On the Cusp or Precipice?” Moderated by Lewis Feldman, partner and Los Angeles chair of Goodwin Procter LLP, the session revealed that the single-family homebuilding industry is showing signs of life four years after stalling, and industrial property continues to be an attractive asset class.
Feldman tells GlobeSt.com that the speakers were “basically pretty darn bullish, especially on the housing side and the ability to deliver new and existing homes.” Leslie Appleton-Young, VP and chief economic of the California Association of Realtors, and Jon Jaffe, chief operating office of Lennar Corp., spoke about pent-up demand and the existing lack of supply, indicating that “you’re going to see price appreciation on a pretty consistent basis between now and 2015, when interest rates are no longer assured to be held low by the Obama administration and Bernanke,” says Feldman.
Affordability is at a 10-year high, and more consumers are qualifying for loans as confidence in their jobs increases, the speakers said. Also, first-time home buyers are buoying the push for single-family homes, and Echo Boomers are driving up demand for multifamily housing as they move into their peak rental stage of ages 22-26. Feldman said speaker Robert Hart, president of Kennedy Wilson’s multifamily management group, indicated that he’s quite comfortable in the position of having two markets today—the renter and the buyer.
On the retail side, Art Coppola, chairman and CEO of Macerich, said he felt that the omnipresent marketing that exists on the web, in malls and through social media is “working pretty well for them,” according to Feldman. “They are seeing quite a few opportunities on the regional mall level and in strip malls.”
Kenneth Lombard, a partner with Capri Capital Partners, indicated that malls are doing cross-channel marketing, utilizing both display space and back-of-shop warehousing space. “They see malls as warehouses, where you have the front of the store for display, and you can put inventory elsewhere so there’s more of an opportunity to ship to the consumer,” Feldman says. However, for the typical retailer in the typical space, there’s still a wait-and-see attitude because of the fiscal cliff.
Regarding that cliff, Appleton-Young said, “It’s Y2K all over again,” meaning that it’s not going to be a big problem. “People forget how close we were to a deal when we went over the cliff the last time,” says Feldman. “There’s a bigger threat of taxes going up and down. The reality is, everybody’s linking up, and if Obama and Boehner jump off that cliff together, everybody gets to blame both sides. It doesn’t really help, and it hurts our credit.”
Uncertainty about the European economy is also still influencing consumer behavior, says Feldman. “We haven’t factored 100% of Europe into consumer behavior.”
Despite the uncertainty, quite a few transactions are taking place, apartment and office buildings and land are being bought and sold, and “we’re seeing a lot more activity right now,” says Feldman. “Real estate is moving into a favored asset class, and the last time we saw that happen, we saw a big boom for a number of years.” He adds that when people feel good about housing, it spills over into everything else, which bodes well for the future.
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