Job growth is heating up in the Inland Empire, and it is catalyzing big changes. One of the beneficiaries of this change: Fontana. The city is currently poised for significant population growth—in the double digits—thanks to the increasing jobs market. For retail investors, the population growth has meant opportunities to provide retail amenities in the growing market. For instance, a private investor from Northern California has acquired a 9,000-square-foot multi-tenant retail property in and area of Fontana where the population is expected to grow 20% .
“Job growth has been key to population growth. Several cities in the area, including Fontana, are ranked on WalletHub’s “2019’s Best Places to Find a Job,” Eric Wohl, EVP at Hanley Investment Group Real Estate Advisors and the broker on the 9,000-square-foot shopping center deal. “Additionally, low-cost housing is attracting millennials to purchase their first home. Several new residential developments in Fontana have been recently completed or are coming on-line in the near future.”
It isn’t uncommon for retail investment to follow strong population growth, and the Inland Empire has been no exception. “Retail investment traditionally follows population growth,” Wohl says. “New residential communities continue to pop up in the area. The need to provide services to the growing population is expected to increase in the foreseeable future. Well-located, existing retail properties, as well as new retail developments serving the increased population demands, will continue to be sought after investments.”
While the population and job growth has spurred investment activity, the market continues to see most investment demand from private capital. However, there has been an increase in all-cash purchases or deals with strong loan-to-value at price points below $5 million. “Historically, the most active buyers of Fontana properties are private investors based in Southern California purchasing properties priced in this price range,” explains Wohl. “These buyers are often based closer to the coast and are looking to purchase a property with a higher return than coastal assets. The Inland Empire is a short driving distance away and offers investors the opportunity to purchase properties with returns 50-100 basis points higher than coastal assets while maintaining similar levels of tenant credit.”
In addition to private capital purchases, Wohl has also seen investors heading into retirement trade out of more management intensive asset classes and into retail—and Fontana has been a popular market for those trades because of the price point and growth potential. “There is a steady trend of aging baby boomers selling out of California multifamily properties,” he explains. “They are looking to trade into properties that have higher return metrics with less intensive management. Neighborhood strip centers continue to be in high demand due to their tenant make-up, which is predominantly service-based and internet resistant, as well as their quality locations in high traffic areas. This property type tends to be triple-net leases with minimal landlord supervision, making it an ideal investment for the buyer trading out of multifamily real estate.”