DALLAS-As California Gov. Arnold Schwarzenegger flexes his muscles to retain or return businesses to his turf, the brutal fact is $15.1 billion of retail and multifamily real estate has swapped hands in the past year. Researchers can't follow the money trail as closely as they'd like, but the overwhelming observation is the majority of reinvested capital is landing in the Sunbelt.
"It's going out of the state not just for opportunity, but for the opportunity to get a deal and be successful," Linwood C. Thompson, managing director of Marcus & Millichap's National Multi Housing Group, tells GlobeSt.com. "They are moving tens of millions of dollars a month out of California." No commercial sector is untouched by the increasing exodus of capital as California sellers reap premium prices and deploy gain into what they know best: coastal properties or the Sunbelt, he says.
Bernard J. Haddigan, managing director of Marcus & Millichap's National Retail Group, says the outflow of capital from California clearly is accelerating. And the sellers, he says, are buying "in areas of anticipated population growth in the Sunbelt."
California sales accounted for 135 of the 405 multi-tenant retail trades in the nation in the third quarter--and that's just from Marcus & Millichap's docket. Year to date, the brokerage house's teams sold 1,033 retail properties in the US, of which 333 were in California. Marcus & Millichap research shows 15% of the 333 California sellers headed to Arizona to reinvest their gain; 20% landed in Texas; and 21% made their way to the Southeast.
In the single-tenant retail sector, Marcus & Millichap research shows California buyers picked up 281 of the 572 sales recorded so far this year by its brokers. The breakdown puts 58 of the sales in Arizona and 57 in Texas.
"Obviously, the neighboring states will always benefit the most," James Sempere, COO for San Francisco-based Global Real Analytics LLC, explains, adding most often investors prefer to stick closer to home rather than "leapfrog from the West Coast to the East Coast."
In a report compiled for GlobeSt.com, David Siopack, Global Real Analytics' senior analyst and portfolio manager, says "the California activity was a bit higher than expected. The majority of California transactions is overwhelming the other states."
Siopack can't track where the money lands, but does know what's sold and where. The firm's database shows Californians sold nearly $7 billion of retail real estate in the past year and $8.1 billion of multifamily assets. Third quarter numbers are still being polished, but this year's first two quarters drove nearly $3 billion of retail sales in the state and $4.3 billion of multifamily swaps.
In Arizona, $1.4 billion of retail real estate sold in the past year and close to $1.7 billion of multifamily holdings. Siopack's year-to-date research shows there have been $761.9 million in retail sales and $811.5 million in multifamily trades.
The Texas market brought $1.3 billion of retail sales in the past year and $2.2 billion in multifamily properties. In the first six months of this year, the state racked up $576.9 million of retail trades and $1.1 billion of multifamily swaps.
And then there's Florida, where $2.1 billion of retail product and $8.1 billion of multifamily sold in the past year. And so far this year, the retail sector's reeled in $928.2 million and multifamily trades soared beyond the $2-billion mark.
The experts concur the California bubble for record sales, particularly in multifamily product, isn't going to burst anytime soon. The worst that could happen, says Thompson, is the transactions volume will slow down...and that's still not likely to occur for a few more years.
Thompson's team, in at least one instance, cut off the marketing after eight days when 22 offers, all hovering full price, rolled in for a $66-million listing in Orange County. Another SoCal multifamily portfolio is about to flip for $100 million, he confides. By and large, it's out-of-state buyers paying record prices to Californians who, in turn, are taking their gains elsewhere. One California seller spent $20 million in Jacksonville, FL while another laid out $50 million in Las Vegas and yet another put $84 million on the line for an Atlanta portfolio. "This capital is all coming out of Southern California," Thompson stresses. "And, they're either going up the coast or following the Sunbelt."
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