2012 Year End Review - Coldwell Banker Commercial NRTrealestatesolutions-victorville-ca.cbcworldwide.com/... · 2013. 1. 30. · 2013 REAL ESTATE SOLUTIONS HIGH DESERT MARKET WATCH

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This past year has brought a much needed stabilization for Commercial real estate, with virtually all sectors bouncing back from dramatic shifts in the market for the better part of three years. Demand has increased signifi cantly in most sectors, including a high demand multi-family, offi ce and REOs. The High Desert saw a signifi cant increase in activity the second half of the year, with sellers entering the market and investors eager to take advantage of low prices for commercial properties. However, the largest story for last quarter of 2012 has been Washington, the election and the fi scal cliff.

The Presidential election in November was of particular interest as its outcome was expected to have a greater impact on Commercial real estate than that of any other in the past 50 years. President Obama won re-election in a contentious and expensive battle, with both sides spending upwards of $6 Billion on their campaigns. Democrats kept a majority in the Senate and Republicans maintained their majority in the House of Representatives as Congress saw only a few changes to the make up of their bodies. With the election results keeping Washington’s controlling parties of the past 2 years in power, most developers, retailers, investors and companies will have a better sense of what to expect for the next 4 years in terms of regulations.

The next hurdle in Washington was the so called “fi scal cliff”, a set of tax hikes and spending cuts enacted by previous laws that would automatically kick in if a new deal was not negotiated by the end of the year. The saga of the “fi scal cliff” negotiations in Congress made national headlines as everyone’s tax rates were subject to changes, including investors and owners in the Commercial real estate industry. Finally a deal was reached on New Year’s day that averted some tax hikes on the middle class, allowed other tax breaks to expire and delayed spending cuts, allowing Congress more time to negotiate the most contentious portions

2013REAL ESTATE SOLUTIONS

HIGH DESERTMARKET WATCHColdwell Banker Commercial Victorville, California

2012 Year End Review

MARKET SNAPSHOT

Vacancy / Total AvailableIndustrial: 4.4% / 9.1%Off ice: 5.9% / 7.9%Retail: 10.4% / 13.0%

Lease Rates PSF/PMIndustrial: $0.34

Off ice: $1.23Retail: $1.55

Existing SpaceIndustrial: 20,357,353

Off ice: 5,379,857Retail: 16,066,840

Washington’s Impact on Commercial Real Estate and Promising Signs for 2013BY JASON LAMOREAUX | President, Coldwell Banker Commercial

of the “fi scal cliff” in the coming months. Two major changes in the agreement will have a dramatic impact on Commercial real estate in 2013 and beyond.

The New Year’s day agreement by Congress raises taxes on both high income earners and raises the capital gains tax, directly affecting the Commercial real estate industry. Most buyers in the market, both nationally and in the High Desert, are investors who typically fall into the higher tax bracket that will see a marginal income tax rate hike from 35% to 39.6%. Similarly, sellers of Commercial real estate will be impacted by the change in capital gains tax, which will increase from 15 – 20%, with an additional 3.8% Medicare surtax added.

While the full effects of both tax rate increases will not be known for several months, the Commercial real estate industry has already been affected, with a frenzy of activity taking place in the fi nal months of

Industrial Report . . . . . . . . . . . . . . 3 Multi-Family Report . . . . . . . . . . . . . . 5 Offi ce Report . . . . . . . . . . . . . . . . . . . . 7 Retail Report . . . . . . . . . . . . . . . . . . . 9 CBC Unveils Smartphone App . . . . . . 10 Land Report . . . . . . . . . . . . . . . . . . . 13 Special Assets Report . . . . . . . . . . . . 15 Capital Markets Report . . . . . . . . . . . 17 Housing Market . . . . . . . . . . . . . . . . . 18 Featured Articles . . . . . . . . . . . . . . . . 19 Property Management . . . . . . . . . . . . 20 High Desert Market Pulse . . . . . . . . . 22 Business Briefs . . . . . . . . . . . . . . . . . 24 CBC Economic Report . . . . . . . . . . . . 25 Featured Article & Reports . . . . . . . . 30

Cover ar ticle continued on Page 30

Jason LamoreauxPresident / Broker

Industrial Report . . . . . . . . . . . . . . 2 Multi-Family Report . . . . . . . . . . . . . . 4 Office Report . . . . . . . . . . . . . . . . . . . . 5 Retail Report . . . . . . . . . . . . . . . . . . . 7 CBC Unveils Smartphone App . . . . . . . 9 Land Report . . . . . . . . . . . . . . . . . . . 11 Special Assets Report . . . . . . . . . . . . 12 Capital Markets Report . . . . . . . . . . . 14 Housing Market . . . . . . . . . . . . . . . . . 15 Featured Articles . . . . . . . . . . . . . . . . 16 Property Management . . . . . . . . . . . . 17 High Desert Market Pulse . . . . . . . . . 19 Business Briefs . . . . . . . . . . . . . . . . . 21 Economic Report . . . . . . . . . . . . . . . . 22 Featured Article & Reports . . . . . . . . 27

Cover Ar ticle continued on Page 27

The industrial market remained steady throughout 2012 as the High Desert continues to be an ideal location for industrial expansion and development in Southern California. The year ended on a high note, with inventory and vacancy rates remaining low as well as a net absorption gain even as the 4th quarter brought some slowing to the overall market.

The 4th quarter of 2012 saw a reduction in activity as companies were reluctant to move in the market because of the uncertainty with the Presidential election and fi scal cliff negotiations. Most companies operating in the industrial market are disproportionately affected by changes in the tax code and regulations. Now that some stabilization has occurred with both issues, companies are expected to be more active in the Victor Valley market than the past quarter.

Despite a net loss of over 47,419 square feet in absorption in the 4th quarter, 2012 actually produced a

net gain of 361,747 square feet absorption with strong numbers in the fi rst three quarters. Vacancy rates have been even more impressive in 2012, lowering every quarter and ending at 4.4% with 9% total availability. The vacancy rate for the end of 2012 was 1.8% less than at the end of 2011. Demand has remained strong and is expected to continue as vacancy rates fall further.

The Victor Valley is reliant upon industrial growth, as most cities have multiple industrial parks that have brought in Fortune 500 companies and thousands of jobs to the region. While this growth slowed down in recent years, resurgence in the industrial market is vital to the economic health of the entire High Desert. Companies are more optimistic going into 2013 as owners, sellers and lease holders are fi nding creative ways to complete transactions.

Buyers have become much more diligent in their

Coldwell Banker Commercial ❘ 15500 W Sand St. ❘ Victorville, CA 92392 ❘ 760-684-8000 | www.cbcdesert.com | DRE #01857050

Vacancy

Absorption

Lease Rates

Vacancy rates increased to 4.4%, slightly up in

Q4, however, 160 basis points down over 2011.

Total available space declines to 9.1%

Absorption increased in Q4 of 2012 to fi nish this year with positive absorption totaling

24,182 SF.

Lease rates remained fl at in 2012 at $0.34 PSF,

down from $0.39 PSF in 2011, a 12.8% reduction

over 2011.

Industrial Market WatchColdwell Banker Commercial Victorville, California2013

3

Strong Demand and Low Inventory Dominated 2012 Industrial MarketJanette Wehrmann

Industrial Market Watch continued on Page 30

3,317,834

2,760,300

1,440,120

4,467,269

8,371,830

Industrial Inventory by City in the High Desert as of 31 Dec 2012

Adelanto Apple Valley Barstow Hesperia Victorville

Industrial Inventory by City in the High Desertas of 31 Dec 2012, in Square Feet

Janette WehrmannVice President

2

Industrial Market Watch continued on Page 27

3REAL ESTATE SOLUTIONS

INDUSTRIAL

2006 2007 2008 2009 2010 2011 2012

Net Absorption 324,726 1,344,656 184,028 100,520 967,144 969,456 361,747

Delivered 593,004 1,264,629 1,858,581 72,300 857,405 74,994 0

Vacancy 696,342 616,315 2,290,868 2,262,648 2,152,909 1,258,447 896,700

Vacancy Rate 4.3% 3.5% 11.8% 11.6% 10.6% 6.2% 4.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

0

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High Desert Industrial Net Absorption, Deliveries and Vacancy by Year 2006 - 2012


2010 Rent/SF $5.01 $4.38 $4.27 $4.41 $6.09 2011 Rents/SF $3.34 $6.30 $4.44 $3.98 $6.18 2012 Rents/SF $3.05 $6.27 $3.85 $3.47 $4.30 2012 Vacancy Rate 2.3% 3.2% 17.3% 6.7% 2.1% 2011 Vacancy Rate 9.5% 2.6% 21.5% 6.8% 3.1% 2010 Vacancy Rate 5.6% 3.7% 17.0% 7.0% 15.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

Aski

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ents

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SF

Asking Annual Industrial Rents per SF and Vacancy Rates by Year and High Desert

Sub-Market 2010-2012 Asking Industrial Rents per SF, Vacancy Rates by Year,And High Desert Sub-Market 2010-2012

High Desert Industrial Net Absorption, Deliveries, and Vacancy by Year 2006-2012

Nationally, multi-family units have been in high demand in 2012, with forecasters predicting a need for between 300,000 – 400,000 new units per year over the next decade to keep up with demand. Freddie Mac predicts that multi-family demand will be strong through 2015 as a shift in demographic trends and home ownership preference take shape in the market. Freddie Mac anticipates a need for between 1 million to 1.7 million units in just the next 2 years.

Similar to national trends, the High Desert has seen an increase in demand that is expected to increase well into 2013 and beyond. The Victor Valley’s inventory for multi-family remained very low in 2012, with mostly smaller unit complexes on the market. The squeeze in inventory positively affected demand last year but still has not translated into increased lease rates as multi-family property owners continue to compete with record low lease rates for single-family homes in the area.

The 4th quarter of 2012 saw an increase in overall market activity in the High Desert, with investors

looking for properties to provide a long-term return on investment. Sellers also were eager to complete transactions before the end of the year because of looming changes in capital gains taxes.

Beginning in 2013, top earners will see a 5% increase on capital gains, jumping from the rate of 15% to 20%. An additional Medicare surtax of 3.8% will also become permanent starting January 1st on net investment income. Many High Desert owners considering selling their multi-family property in the next few years jumped into the market in the 4th quarter, trying to complete a deal before the tax hikes take effect.

While 2012 has provided many positive signs of growth in the multi-family market, lease prices in the Victor Valley are not expected to change until single-family home prices recover further. Despite lower lease rates, trends of low inventory and high demand will continue into 2013 both nationally and in the High Desert.


Vacancy

Absorption

Price Per Unit

Vacancy continues to decline as population

growth adds pressure to existing inventory.

Positive absorption continues, however, with minimal new deliveries

Strong demand coupled with limited

inventory continues to fuel prices.

Q4 = AVG $ per unit/ $44,656, and

AVG $/SF $59.13

5

2012 Multi-Family Market WatchColdwell Banker Commercial Victorville, California2013

Multi-Family Demand To Remain Strong Into 2013 And BeyondMehdi Mostaedi & Bob Basen

$-‐

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

Jan '12 Feb '12 March '12 April '12 May '12 June '12 July '12 Aug '12 Sept '12 Oct '12 Nov '12 Dec '12

Adelanto

Apple Valley

Hesperia

Victorville

Average Price Per Unit

Mehdi MostaediExecutive Vice President

Bob BasenSales Associate

4


2012 remained very consistent in the office market, with the High Desert stabilizing further in the second half of 2012. Much of the activity in the market during 2012 was driven from investors looking to move into the Victor Valley or from local companies looking to capitalize on low lease rates and prime locations previously unavailable. While lease rates have remained flat, vacancy rates have continued to fall as absorption increased in 2012.

Vacancy rates changed slightly in 2012, currently holding at 5.9% for the 4th quarter and only 0.4% lower than the same time in 2011. Absorption fluctuated more in 2012, with the year starting off with a net loss absorption, however bounced back and stabilized for a net gain of 12,916 square feet in the 4th quarter and an overall net absorption gain of 24,182 square feet in 2012.

Another consistent trend in 2012 was the progression by landlords and tenants to shorter term rates, averaging 2 years for most leases. The High Desert has also experienced rent abatement concessions made by

owners looking for quality tenants with a strong rental history. This trend is expected to carry over into the New Year and until lease rates recover.

While activity has remained steady with leasing transactions, office-building sales are down due to a lack of inventory throughout the Victor Valley in the past quarter. Inventory has been reduced primarily because owners’ rate of return continues to be suppressed by low rental rates in the market. Once rental rates increase, the High Desert will see a similar increase inventory of available properties for purchase.

The first quarter of 2013 is expected to bring a slight uptick in activity for office leasing in the High Desert. The overall market has stabilized with vacancy rates, inventory and rent rates and is expected to remain consistent with the second half of 2012. With a further stabilization in the market for office space, investors and savvy businesses will look to capitalize on the quality professional and medical office space still available in the Victor Valley marketplace.

Vacancy

Absorption

Lease Rates

Vacant space is up slightly to 5.9%, slightly up over Q3 and 2011 overall. Total Available

space is at 7.9%.

Absorption increased in Q4 of 2012 to

fi nish the year with positive absorption totaling 24,182 SF.

Leases fell 4.7% in Q4 to $1.23 PSF as a result of an

increase in vacancy.

Off ice Market WatchColdwell Banker Commercial Victorville, California2013

7

Market Stabilization Continues Throughout the High DesertWalt Wehrmann

141,901

1,040,793

571,005

1,047,940

2,578,218

Office Inventory by City in the High Desert as of 31 Dec 2012


Off ice Inventory by City in the High Desertas of 31 Dec 2012, in Square Feet

Walt WehrmannVice PresidentBroker Associate

5

REAL ESTATE SOLUTIONS

OFFICE

2006 2007 2008 2009 2010 2011 2012

Net Absorption 159,617 108,126 160,874 (26,837) 133,381 25,687 24,182

Delivered 137,099 208,867 164,487 27,485 17,638 67,514 3,480

Vacancy 216,156 328,630 359,879 414,201 298,458 340,285 319,583

Vacancy Rate 4.5% 6.5% 6.8% 7.8% 5.6% 6.3% 5.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

(50,000)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

RBA

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High Desert Office Net Absorption, Deliveries and Vacancy by Year 2006 - 2012


2010 Rent/SF $0.00 $20.64 $16.91 $14.50 $15.78 2011 Rents/SF $10.80 $17.61 $15.02 $13.50 $15.18 2012 Rents/SF $10.92 $15.92 $12.81 $12.00 $15.42 2012 Vacancy Rate 0.0% 7.7% 6.1% 3.3% 6.6% 2011 Vacancy Rate 0.0% 6.1% 8.5% 4.3% 7.1% 2010 Vacancy Rate 0.4% 4.2% 3.5% 3.6% 7.8%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

$0.00

$5.00

$10.00

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$25.00

Aski

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ents

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SF

Asking Annual Office Rents per SF and Vacancy Rates by Year and High Desert Sub-Market 2010-

2012 Asking Off ice Rents per SF, Vacancy Rates by Year,And High Desert Sub-Market 2010-2012

High Desert Off ice Net Absorption, Deliveries, and Vacancy by Year 2006-2012

6


Vacancy

Absorption

Lease Rates

Vacancy rates increased in Q4 to 9.5%, primarily

attributed to the relocation of Wal-Mart to a new facility.

Vacancy rates are up 30 basis points over 2011.

Absorption was positive in 2012 with 277,743 SF of total space absorbed

including two Super Wal-Marts.

The ask rate fell slightly in Q4 to $1.55. Lease rates

were relatively fl at in 2012.

2013 Retail Market WatchColdwell Banker Commercial Victorville, California

absorption increased the same quarter because of new construction. Overall, retail in 2012 absorbed 278,000SF of space, compared to a loss of almost 67,000 SF in 2011. In the last three years, demand for retail space increased by 429,000 SF, refl ecting the rebound of retail sales since the bottom of the 2007-09 Recession. A total of 589,000 SF of retail space was delivered during the same period.

The retail market in the High Desert remains divided, as effective rental rates for the premium locations increased, while the rates for secondary locations have declined. Most cities have experienced some absorption, as national retailers are taking more notice of the area because of Walmart’s recent activity in the market. Even so, there has been little change in inventory of retail space in the cities of Adelanto and Barstow, with Barstow reporting a vacancy rate of 9.2% last quarter.

The City of Victorville has 7.1 million square feet or 43.3% of all the retail space in the High Desert. As the oldest city in the region, Victorville has a large concentration of retail space developed within close proximity of the I-15 Freeway. While the new Walmart center brought a net positive absorption to Victorville last quarter, the previous facility has not been fi lled yet, adding to a jump in vacant retail space. Victorville closed the year with a vacancy rate at 11.8% equaling 839,000 SF of vacant retail space.

The Town of Apple Valley has a retail inventory of 2,990,000SF, of which 1.5 million square feet of space has been built since 2004. Most of this retail construction occurred around the intersection of Bear Valley Road and Apple Valley Road and along Hwy 18 & Dale Evans Parkway. The vacancy rate has declined from 10.9% to 7.3% during 2012 due to a net absorption of 125,000 SF.

The City of Hesperia has 2.9 million square feet of retail facilities of which 7% is vacant. The city absorbed 202,000 SF in 2012, almost all of which was accounted for by the opening of the Walmart center, which will compete with the Super Target on the opposite side of the I-15 Freeway.

The 4th quarter saw retail boom in the High Desert as new big box stores completed construction and local retailers and restaurants expanded. Walmart opened two super stores in Hesperia and Victorville, totaling 387,500 SF of new retail space. Victorville’s existing Walmart store operations were relocated to the new super store to provide greater expansion and better freeway frontage to Interstate-15. In 2012, Walmart’s retail operations in the High Desert totaled 261,000 SF of net absorption. The retail giant plans more expansion in the Victor Valley, with anticipated openings of three more mega facilities in the cities of Adelanto, Apple Valley and Victorville.

As one of the best performing malls per square foot for sales in the entire country (for its size), the Mall of Victor Valley expanded two anchor locations in 2012. JC Penney’s expanded its operation by 37,000 SF, opening in a larger building in the 4th quarter. Macys will be opening their fi rst location in the High Desert in March, anchoring the northeast side of the mall with a 103,000 SF store.

Local retailers are still taking advantage of previous vacancies in prime locations, moving their operations for freeway frontage access or to get better exposure along major thoroughfares such as Bear Valley Road in Victorville, Highway 18 in Apple Valley, and Main Street in Hesperia. As rental rates have remained stagnant, well managed local businesses and national chains have either expanded or moved for the fi rst time into the region.

Pancho Villa Entertainment Restaurant, and Freddy’s Steak Burger & Frozen Custard opened along Victorville’s restaurant row in 2012. Nearby, Panera Bread is building their new concept store, set to open in Jan. 2013. M&M Jewelers and Juan Pollo both expanded with a second location in 2012, opening in Apple Valley. Fred Loya also established another location in the High Desert, expanding his insurance company operations.

As of December 2012 the fi ve incorporated cities of Adelanto, Apple Valley, Barstow, Hesperia and Victorville combined for a total 16.1 million square feet of retail space, with approximately 1.5 million currently vacant. Last quarter, the vacancy rate increased to 9.5%, even as

9

Retail Climbs in 4th Quarter With Walmart Leading the WayDr. Ronald J. Barbieri, Ph.D., CPA

Nick Di CosolaSenior Vice President

Ron BarbieriSenior Vice President

7


RETAIL2006 2007 2008 2009 2010 2011 2012

Net Absorption 648,338 1,150,283 709,522 (225,271) 218,277 (66,672) 277,743

Delivered 739,682 1,075,712 1,054,048 302,854 54,774 21,676 512,945

Vacancy 691,181 616,453 981,104 1,509,229 1,345,726 1,434,074 1,525,906

Vacancy Rate 5.3% 4.4% 6.5% 9.8% 8.7% 9.2% 9.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

(400,000) (200,000)

0 200,000 400,000 600,000 800,000

1,000,000 1,200,000 1,400,000 1,600,000 1,800,000

RBA

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High Desert Retail Net Absorption, Deliveries and Vacancy by Year 2006 - 2012

254,886

2,990,623

2,796,920

2,908,034

7,116,377

Retail Inventory by City in the High Desert as of 31 Dec 2012


2006 2007 2008 2009 2010 2011 2012

Net Absorption 648,338 1,150,283 709,522 (225,271) 218,277 (66,672) 277,743

Delivered 739,682 1,075,712 1,054,048 302,854 54,774 21,676 512,945

Vacancy 691,181 616,453 981,104 1,509,229 1,345,726 1,434,074 1,525,906

Vacancy Rate 5.3% 4.4% 6.5% 9.8% 8.7% 9.2% 9.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

(400,000) (200,000)

0 200,000 400,000 600,000 800,000

1,000,000 1,200,000 1,400,000 1,600,000 1,800,000

RBA

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High Desert Retail Net Absorption, Deliveries and Vacancy by Year 2006 - 2012

254,886

2,990,623

2,796,920

2,908,034

7,116,377

Retail Inventory by City in the High Desert as of 31 Dec 2012


Adelanto Apple Valley Barstow Hesperia Victorville High Desert 2010 Rent/SF $12.85 $19.22 $12.12 $16.17 $14.27 $14.92 2011 Rents/SF $16.36 $14.29 $12.16 $14.87 $26.32 $20.67 2012 Rents/SF $23.73 $13.79 $10.96 $13.45 $23.27 $18.57 2012 Vacancy Rate 3.6% 7.3% 9.2% 7.0% 11.8% 9.5% 2011 Vacancy Rate 4.6% 10.9% 8.5% 7.0% 9.9% 9.2% 2010 Vacancy Rate 5.5% 5.9% 8.5% 8.5% 10.2% 8.7%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

$0.00 $5.00

$10.00 $15.00 $20.00 $25.00 $30.00

Aski

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Asking Annual Retail Rents per SF and Vacancy Rates by Year and High Desert Sub-Market 2010-

2012 Asking Retail Rents per SF, Vacancy Rates by Year,And High Desert Sub-Market 2010-2012

High Desert Retail Net Absorption Deliveries and Vacancy by Year 2006-2012

Retail Inventory by City in the High Desert as of 31 Dec 2012, in SF

8

Global market leader Coldwell Banker Commercial, known for their cutting edge high-tech

marketing, has launched a smart phone app, enabling property, offi ce and professional

agent searches on the go. “This is an exciting step for our fi rm,” stated Chris Lamoreaux,

Chief Operating Offi cer. “People want information available to them on demand. This app

is intuitive, quick and convenient, and gives our clients the ability to connect to unique

commercial real estate opportunities in thriving and upcoming markets.”

Download the app from the App Store, or Google play. The search application will allow

clients and potential clients to search for commercial properties, offi ce listings and

professional agents from their iPhone® and Android®-powered devices. A personalized

account allows the results of the search as well as the search itself to be saved, and the

app-created account will generate automatic notifi cations for new properties.

“We are committed to remaining the market leader in the Victor Valley, and innovation

is part of how we achieve that,” stated Jason Lamoreaux, President and CEO of Coldwell

Banker Commercial Real Estate Solutions in Victorville.

Features of the new smart phone app include GPS-based search to locate over 15,000

commercial, industrial, land and offi ce properties for sale or lease in primary, secondary

and tertiary markets; the ability to search by current location, city/street/zip, property

type, property size, sale or lease, and price range; the option to view search results in

list form or on a variety of maps including street, and satellite; direct dial and email

functions from the user’s mobile handset to the Coldwell Banker Real Estate listing agent

associated with each property; detailed property listings including images and slideshow

views; easy to share listings via email, facebook and twitter. The app also allows users to

fi nd Coldwell Banker Commercial professionals and locations quickly, and obtain driving

directions and contact information on demand.

For more information on the Coldwell Banker Commercial smart phone app, contact Coldwell

Banker Commercial Real Estate Solutions marketing department at 760-684-8000. Download

the app from the App Store, or Google play. Follow Coldwell Banker Commercial on Facebook,

LinkedIn and Twitter.

10

Coldwell Banker Commercial Launches Smart Phone App

16,000 Listings In Your Pocket!One of the only commercial

real estate � rms with a single App that allows you to search:

PropertiesO� ces

Professionals

Other Smartphonesm.cbcworldwide.com

GET IT ON

Apple Valley consultant ad 2012.indd 1 8/3/12 11:30 AM

Advertisement

2012 has fi nished on a high note, with a great deal of interest and activity in Land throughout the High Desert this year. Just two years ago, demand in the Victor Valley was almost nonexistent as the national and local economies were ravaged by the Great Recession. This year has marked a dramatic shift as investors are now seriously looking at prospective lots for development.

In fact, the fi nal quarter of 2012 saw Coldwell Banker Commercial complete several transactions involving land in the High Desert. While the year was already trending higher each quarter, most experts believe the jump in 4th quarter activity is largely due to the impending capital gains tax hike. Beginning January 1st, the capital gains tax increases from 15% to 20%, affecting most sellers in the Commercial real estate market. This has spurred a tremendous amount of activity in the High Desert as sellers have been eager to complete a deal before the deadline.

For the fi rst time since the recession, both investors and developers have entered the High Desert market looking for in-fi ll and premier parcels for future development. Demand has been strong across most sectors, including multi-family and even single-family development.

Home prices are beginning to rebound throughout San Bernardino County. According to the California Association of Realtors, the county median home price in November was $152,000, up over 12.4% from the same time in 2011. Investors and developers are predicting that home prices in Southern California will rebound signifi cantly in 2013 and are actively looking

for multi-family and single-family opportunities to keep up with current demand and the continual population growth the High Desert has experienced.

The most promising indications from 2012 is the resurgence in demand for Industrial development in the Victor Valley. As the cornerstone to the local economy, Industrial development has brought thousands of jobs to the region over the past decade. With close proximity to the LA/Long Beach ports, rail access, several major interstates and a diverse workforce, investors are keenly aware that the High Desert is perfectly poised to be at the center for growth in Industrial development in the future.

Investors and developers are also aware of the growing demand for large scale distribution centers that require 15 acres or more of space to be constructed. The only place within the greater Los Angeles area that can accommodate that size is in the High Desert. The High Desert’s 8-hour drive time to over 10% of the entire U.S. population also makes the region ideal for distribution centers that rely more and more on eCommerce and next-day shipping. eCommerce is expected to be the next major wave of development, as Forrester projects 2012 eCommerce sales to top $226 billion, up over 12% from 2011 totals. In 2013, demand from investors and development for prime industrial land in the High Desert is expected to grow signifi cantly.


Activity

Inventory

CurrentDevelopment

Sales volume was up 8.5% in 2012 over 2011.

Sales price, relative to list price, declined from

81.8% to 62.6%

Available properties have increased in general, with

tightening in select product types including SFR

fi nished lots and turn-key multi-family parcels.

Permit activity valley wide remained fl at for 2012

over 2011. Notable projects for 2012 included two Super Wal-Marts with three additional slated for

2013/2014

2012

13

2012 Land Market WatchColdwell Banker Commercial Victorville, California2013

Demand for Land and Future Development Skyrockets in the 4th QuarterMehdi Mostaedi


Jack HightowerSales Associate

11


2013 Special AssetsColdwell Banker Commercial Victorville, California

institutions were also eager to sell in the second half of 2012 to reduce their inventory of distressed properties before the end of the year.

With the highly competitive market, Coldwell Banker Commercial represented both sellers and buyers in transactions the past quarter. Representing the seller, Coldwell Banker Commercial assisted a fi nancial institution with a 5-unit apartment complex in Victorville thinking outside the box with a nontraditional solution of utilizing an auction to fi nd an investor. Coldwell Banker Commercial also assisted an investor who purchased a 19,000 square foot offi ce building located in Victorville’s Civic Center area.

The fi rst quarter of 2013 looks to continue the recent trends of low inventory and high demand, even if prices are expected to only modestly increase. Buyers will still be looking at an REO market that remains very competitive in the new year, with properties receiving multiple offers with few if any contingencies from fi nancial institutions.

The 4th quarter of 2012 saw a dramatic jump in activity within the High Desert’s Special Assets and REO market. 2012 was marked by continuing trends of further reduction in REO inventory and increased demand for all REO properties. This has led to a very competitive market, with most listings receiving multiple offers or cash sale options. While there are many factors that drive demand, the past quarter has been largely driven by shrinking inventory as well as the desire by both sellers and investors looking to complete a deal before the end of the year.

Most REO properties in the High Desert are being sold to investors looking to capitalize on low prices and to have a stable return on investment. Because many investors tend to be in a high tax bracket, they are especially susceptible to the recent changes in the tax code and lingering effects of the fi scal cliff. This uncertainty has spurred a great deal of activity in the 4th quarter of 2012, as many investors tried to complete their purchases for end-of-the-year tax savings and before new tax laws took effect January 1st. Financial

15

Flurry of Year End Activity in the REO MarketJosh Rey

Default

Inventory

Cap Rate

Nationally, CMBS defaults fell slightly to 9.71% in

Q4, and relatively fl at year over year with default rates up only 13 basis points.

REO’s at 3.6% were down slightly year-over-year.

Declining inventory as lenders seek alternatives to foreclosure coupled with strong demand for

REO properties

Downward pressure on CAP rates as

investors compete for REO properties.

CA Foreclosure Report

Introduction to my CA Foreclosure Report

The chart above shows Filings of New Notices of Default, and Notices of Trustee Sale for the last year.

The chart above shows Foreclosure Outcomes in CA for the last year.

Data provided by ForeclosureRadar.com and subject to the terms of ForeclosureRadar.com's User Agreement.

Page 1 of 1Report as of: 01/08/13 4:05 PM

Introduction to CA Foreclosure Report

Josh ReySenior Sales Associate

12


SPECIAL ASSETS

Percentage 30+ Days Delinquent by Property Type Dec-‐12 Nov-‐12 Oct-‐12 3 Mon 6 Mon 1 Year Industrial 11.24 11.48 11.53 12.21 11.54 12.03 Lodging 11.73 12.24 11.24 12.16 12.95 12.2 Multi-‐Family 13.98 14.21 14.26 14.09 15.17 15.57 Office 10.66 10.37 10.2 10.48 10.45 8.97 Retail 7.62 7.75 8.03 8.09 8.17 7.85

8.8

9

9.2

9.4

9.6

9.8

10

10.2

10.4

10.6

Percent Delinquent

Percentage 30+ Days Delinquent by Property Type Dec-‐12 Nov-‐12 Oct-‐12 3 Mon 6 Mon 1 Year Industrial 11.24 11.48 11.53 12.21 11.54 12.03 Lodging 11.73 12.24 11.24 12.16 12.95 12.2 Multi-‐Family 13.98 14.21 14.26 14.09 15.17 15.57 Office 10.66 10.37 10.2 10.48 10.45 8.97 Retail 7.62 7.75 8.03 8.09 8.17 7.85

8.8

9

9.2

9.4

9.6

9.8

10

10.2

10.4

10.6

Percent Delinquent

13


2013 Capital MarketsColdwell Banker Commercial Victorville, California

there is a possibility that the initial investment may not be recovered.

Consequently, investors’ thresholds have become more reasonable, and they are forced to consider other selling points. Lately, buyers have found comfort in Walgreens and 7-11 locations that continue to grow their same store sales. This allows prospective buyers certain assurances that the tenant would most likely exercise a lease option on the location for an additional 15 or 20 years.

Currently, the most sought after national tenants are represented below with their respected average cap rate that can be expected. These brands are highly desirable due to their stability, and the size and value of the buildings they occupy. Therefore, a Walgreens or a 7-11 rarely last a month on the market when advertised at 6.00% CAP rate or above.

Demand is expected to increase in 2013 as interest rates remain at historical low rates, providing investors minimal returns from money, saving and bonds markets, and transition funds into income producing assets.

The chart below shows the expected cap rate that a buyer can expect to fi nd with their respective national tenants:

Capitalization rates on single tenant net leased buildings for sale continue to hover near all-time lows across the retail, offi ce, and industrial categories through Q4 2012 in the Inland Empire of California.

Specifi cally, cap rates for net leased retail properties remain unchanged, according to information released by CoStar Group, the nations leading authority on commercial real estate data. The average marketing time required to sell these asset types decreased by 20%. It is unclear exactly why, but the consensus is that there are a signifi cant amount of cash buyers in the market, and the lending institutions are continuing to tighten the reigns on fi nancing.

Another contributor that is being considered is called the “Head Fake” cash buyer that obtains fi nancing after the close of a cash transaction. This is an incentive for the seller to discount the sale by being able to navigate a quick close of escrow, and therefore agreeing to less than the asking price.

The net lease market continues to be strangled in terms of transactions by the lack of newly constructed property being delivered, and the limited amount of existing long-term leases that are available. A majority of the 15 to 20-year leases were signed in the land development boom of the early and mid 2000’s. An initial lease term of 15 years is not all that attractive if there is less than 50% of the lease remaining, because

17

Capitalization Rates Remain Steady Townsand Cropsey

Demand

Inventory

Cap Rate

Demand remains strong for A-rated national single

tenant properties. As a result of the competitive market for trophy properties, investors

are seeking alternatives including class B properties

with strong rental history.

Capital continues to exceed inventory, creating a competitive market for

investors, and subsequently reducing inventory and

time on market.

CAP rates for the Inland Empire increased in Q4 to

8.52% for all asset classes, up from 6.75% in Q3, and

6.24% Q4 of 2011.

Walgreens 6.00%AutoZone 6.85%Dollar General 7.25%McDonald’s 4.50%FedEx 7.15%Chase Bank 5.00%

7-Eleven Stores 5.88%DaVita 6.50%Burger King 6.00%Applebee’s 6.75%CVS 6.00%

Average CAP Rate of Return in 2012

Average CAP Rate of Return in 2012

National Tenant National Tenant

Townsand CropseySales Associate

14

CURRENTCONDITIONS

VICTOR VALLEYHOUSING MARKET

$125,900MEDIAN HOME PRICE

_____________

68%REPLACEMENT COST

_____________

724HOMES ON THE MARKET

_____________

410HOMES SOLD LAST MONTH

_____________

1.8MONTHS OF INVENTORY

_____________

13.5%PRICE INCREASE, YEAR OVER YEAR_____________

41%REDUCTION IN INVENTORY

YEAR OVER YEAR_____________

$71.60AVERAGE PER SF

Housing Market

18

0

1000

2000

3000

4000

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6000

Jan-‐03

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Single Family Residence -‐ Inventory

$0.00

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Single Family Residence -‐ MEDIAN SALES PRICE

0 100 200 300 400 500 600 700 800 900

Jan-‐03

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Jul-‐0

5

Dec-‐05

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0

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Single Family Residence -‐ Total Sales

15

19

Coldwell Banker Commercial’s REO specialist Josh Rey was busy in the fi nal month of the year, with several transactions closing both in the Victor Valley and throughout Southern California.

REO properties were a hot commodity for those looking for a stable return on investment and to capitalize on end-of-year tax savings. The REO market is highly competitive, with many properties moving very quickly on the market, often receiving multiple offers and cash only transactions.



Coldwell Banker Commercial Reports:

REO Transactional Activity Remains Strong!

Coldwell Banker Commercial Continuing to Expand!

Coldwell Banker Commercial

Facilitates Sale in Adelanto Industrial Park

Closing a successful 2012, the Coldwell Banker Commercial team is looking forward

to growth and development in the New Year. With a notable number of completed commercial real estate transactions and a team of skilled and experienced agents, Coldwell Banker Commercial has continued to cultivate success as a team in the High Desert.

As more investors, business owners, landlord and tenants choose Coldwell Banker Commercial for their real estate needs, the team is expanding. To continue providing clients with excellent customer service and accessibility, Coldwell Banker Commercial has expanded with new Senior Vice Presidents; Ronald Barbieri and Nick Di Cosola.

With over 40 years of experience in the real estate industry, Ron Barbieri brings his professionalism, expertise and skill to Coldwell Banker Commercial. A resident of the High Desert for over 20 years, Barbieri is an expert in the fi eld and is credentialed with a Ph.D. in Urban Land Economics, in addition to being a Certifi ed Public Accountant. With a passion for commercial real estate, Barbieri’s vast experience ranges from asset evaluation of large residential development projects, commercial real estate portfolios for fi nancial institutions, to being a lead tenant rep in leasing such properties as Jess Ranch Marketplace, in addition to being instrumental in the architect and design of the fi rst phase of Jess Ranch. Barbieri has brokered numerous commercial transactions, such as the notable $20 million transaction of a 430 acre parcel.

Taking notice of Coldwell Banker Commercial’s footprint in the High Desert, Barbieri was impressed with the innovative marketing strategies and being the leader in invaluable resources such as the High Desert Market Watch.

“Coldwell Banker Commercial is the number one commercial fi rm in the High Desert and a reputable business with skilled agents and staff. With the cutting-edge tools available to best market properties and satisfi ed clientele base, I knew I wanted to be a part of this team,” stated Nick Di Cosola.

Nick Di Cosola has been active in the High Desert real estate community for nearly 30 years. Nick has specialized in commercial real estate, and has been responsible for many major retailers opening new locations in the Victor Valley. Nick negotiated leases and land sales with companies such as Chevron, Kenny Rogers Roasters, Blockbuster Video, Kragen Auto Parts, the fi rst Walgreens in the High Desert, Pancho Villa’s and Freddy’s Steakburgers, both on Restaurant Row in Victorville. His relationships with national and regional retailers have enabled him to achieve a high level of pre-leasing on developments for which he is the leasing agent. Nick works closely with each city in developing retail developments. A good example is Jess Ranch Market Place, which is a 75 acre retail power center in the Town of Apple Valley; Nick conceived the marketing strategy and worked with the landowner and the city to package the project for additional development.

“We are extremely pleased to welcome Ron and Nick to the team,” stated President of Coldwell Banker Commercial, Jason Lamoreaux. “They are a great addition to the team and we’re excited to have them on board.” Preparing for further growth in 2013, the Coldwell Banker Commercial team is on track to another successful year.

Josh represented the REO property and the buyer who purchased the vacant 19,000 square foot offi ce building for $815,000 from the fi nancial institution for investment purposes. The building located along Sage Street in Victorville’s Civic Center area is ideally suited for a single tenant user.

Although Josh works primarily with properties in the High Desert, as a valued member of the Coldwell Banker Commercial family he also represents several buyers and sellers in the greater Southern

California region. In December, Josh was able to complete a very quick 2 week escrow for a 23 unit offi ce building in Orange County. The buyer was an investor who purchased the building in cash with no contingencies. The offi ce property will quickly provide a return on investment as the offi ce suites already have a 40% occupancy rate.

While at Coldwell Banker Commercial, Josh has established a strong relationship with several

REO Transactions cont. on Page 30

Coldwell Banker Commercial’s Industrial Division opened the new year with the sale of a ±16,800 SF industrial building in an Adelanto Industrial Park located at 9248 Holly Road for $755,000. The seller was very pleased with the agreed upon sales price and terms they obtained for the well-maintained 2003 metal building which sits on a corner lot of approximately 3.92 acres. The facility is well equipped and includes offi ce space, a 2,700 sf workshop area with air conditioning, heat, and employee amenities. The insulated warehouse portion offers GL truck doors, ventilation for a spray booth, shipping and receiving offi ces, pneumatic lines throughout and more.

The seller was a local distributor of airplane parts, and sold to Hernandez Trucking, a long-haul trucking company. “The property sold in less than thirty days,” stated Janette Wehrmann, who represented both sides in the owner-carried transaction. “The Adelanto location is perfect for transportation because of proximity to the Los Angeles and Long Beach ports, and for its freeway access to Southern and Northern California, as well as to the I-40, which traverses the US all the way to the East Coast.”

“Mr. and Mrs. Hernandez were also very pleased with the location, price and terms of the purchase. I was able to facilitate a transaction that met both the seller’s and buyer’s time frame needs, in order to minimize their businesses down time and keep production running,” explained Janette.

Coldwell Banker Commercial ❘ 15500 W Sand St. ❘ Victorville, CA 92392 ❘ 760-684-8000 | www.cbcdesert.com | DRE #01857050 16

REO Transactions continued on Page 27


PROPERTY MANAGEMENT

Our Property Management Professionals can assist you in any of these services:

• Comprehensive Monthly Reporting

• Monthly Rent Invoicing

• Accounts Receivable & Payable

• Expense Reconciliation

• Budgeting Control & Cost Containment

• Financial Review & Analysis

• Lease Administration & Compliance

• Vendor Service Contract Management

• Tenant Retention

• Document Preparation & Review

• Maintain Property Records and Leases

• Routine Facility Inspections

• Supervision of Maintenance Plan

• Risk Management Programs & Assessment

• Compliance of Environmental Issues

• Emergency Procedures

• Construction Management of Tenant Improvements

• Disaster Recovery Plan

• Preparation and Service of Legal Notices

• Lease Negotiation & Renewal

• Forensic Audit & Property Transition

• Capital & Expense Budget Preparation

• CAM Reconciliations & Budgeting

• Oversee Daily Property Operations

• Fire/Life Safety Oversight

• Receivership Services

• Property Maintenance Oversight

• Risk Management/ Insurance Compliance

• CC&R Management Enforcement

• Ownership Association Participation

• Property Tax Appeals

• Operating Expense & Rental Rate Benchmarking

• Owner/ Tenant Relations

• Legal Eviction Processes & Default Procedures

• Tenant Improvement Oversight

17


2013The Coldwell Banker Commercial®

(CBC®) organization works closely with

you to provide comprehensive property

management services geared toward

reducing expenses and increasing

tenant retention. With access to 4,000

colleagues in over 500 CBC offi ces

across the globe, Coldwell Banker

Commercial associates have the

cutting-edge technology tools, property

management expertise and market

knowledge to provide you with superior

management services. CBC associates

serve as the owner’s representative

throughout the entire project or

transaction.

CBC professionals come to their clients

as trusted advisors with innovative and

profi table ideas and solutions. Every

CBC professional is client-focused

and results-driven to meet the owner’s

expectations.

#2#12

#9#18

A long-term tenant is a valuable asset in a saturated rental market, so make sure you keep on top of all those little jobs that will make it easier for the tenant to feel like it is a good working environment.

Maintaining the front door to your property and the common areas where people walk thru on a constant basis is an often overlooked and important tool to help retain tenants. Plant fl owers in the front of your property. Keep the parking lot clean, the grass mowed and the bushes trimmed. Make the property inviting to come into work.

Another great way to increase your relationship is to speak to your tenant and inquire as to what would make their environment better to work in. Tenants might have ideas, but don’t openly present them. Many times, it may be something really small that could make the world of difference. If it is a bigger item, it may be possible to amortize the cost in the general operating expenses if all the tenants will benefi t from the suggestions.

Key Maintenance Issues and Courtesies Issues involving water, electricity, heating and air conditioning or safety should be resolved within 4 hours of initial problem. As a courtesy, make sure to follow up with a call or visit to the tenants to assure that all issues have been resolved

Tip:

Tip:

Tip:

Tip:

Property ManagementColdwell Banker Commercial Victorville, California

Tenant Retention Tips of the Quarter:Ask: “What Would Make the Building Better?”

Improve Property Grounds

Don’t Get Complacent

2118

High Desert Market Pulse

22

Lisa K. LaMereCity of HesperiaEconomic Development Management Analyst

With a V.I.P. Wrap Party held on December 12, 2012 to celebrate Hesperia’s new cinema, the Civic Plaza 12 opened its doors to rave reviews. This 12-screen, all digital projection theater features dinner-with-a-movie as well as beer and wine service, and seats more than 1,700 patrons.

Surrounding the theater are County and City offi ces, the county’s emergency operations center, the Hesperia Branch Library, and new police headquarters, all centered on a four-acre community park. There is approximately 200,000 square feet of offi ce space with an estimated 3,500 people working here daily. In the area surrounding the theater, attraction efforts are underway to fi ll pads and parcels with a dinner house, restaurants serving lunch and/or breakfast, as well as coffee and bagel eateries. Interested parties can contact Rod Yahnke at (760)947-1907.

Hesperia had an auspicious start to 2013 with several more projects in the pipeline due to be completed this year. Chase Bank in the High Desert Gateway, at I-15 and Main Street, is slated to open in early spring. In the same center, the 2,265 square foot Five Guys Burgers recently pulled permits for their tenant improvements. Chipotle Mexican Grill, located just north of In-N-Out on Mariposa, has begun grading. All of these locations are in Hesperia’s Enterprise Zone, making qualifi ed employees eligible for hiring credits. This is but one of the incentives illustrating that, quite simply, Hesperia works for business!

Ready to open another area to development. Hesperia’s Ranchero Corridor Project is moving rapidly forward with a new Interchange braking ground on January 11, 2012. This two-year project includes three lanes in each direction and will provide direct access to Interstate 15 via Ranchero Road, Mariposa Road and Caliente Road. This long-awaited, $59 million interchange, is funded with a mix of Federal, State, local and Measure I funds. Please visit www.cityofhesperia.us for more information.

Orlando AcevedoEconomic Development Manager, Apple Valley

“Get a Slice” (stay up to date: getaslice.org)

Apple Valley fi nished 2012 with 9 consecutive quarters of sales tax revenue growth, carrying momentum and renewed optimism into the new year. Several signifi cant projects stand on the horizon, including the Yucca Loma Bridge, the Multi-Species Habitat Conservation Plan and the Walmart Supercenter.

Apple Valley will also welcome these new and expanding businesses in 2013: Ulta Beauty, a 10,000 sq ft beauty supply retail store and salon, will open its only store in the region at Jess Ranch Marketplace (JRM); TruBlu Logistics is doubling their existing facility to 140,000 sq ft; Telexca, an aircraft and aerospace products manufacturer, is doubling their facility to 7,000 sq ft; The Wine Seller is also expanding its store and adding 18 beers on tap to its popular microbrew selection; Denny’s will open its second location in Apple Valley; and Oggi’s Pizza is adding 40 seats to its restaurant at JRM. With the completion of the Yucca Loma Bridge in 2015, a long-awaited development opportunity will ripen for the Fountains at Quail Ridge, a 350,000 square foot mixed-use lifestyle center at the Yucca Loma Road and Apple Valley Road intersection. These developments will help support Apple Valley’s forthcoming “shop local” initiative in 2013.

During 2013 Apple Valley will unveil new promotional material, highlighting its commercial and industrial markets and featuring its signature community events—which continue to attract record numbers in each successive year. More than 50,000 annual attendees converge onto Apple Valley for such events

as the Sunset Concerts (8,000 annual attendees), July 4th Freedom Festival (10,000), Apple Valley Air Show (12,000), Lenny Brewster Sports Center Soccer Tournaments (14,000), Happy Trails Chili Cook Off (3,000), Equine Festival (2,000), and the Rockin’ the Desert Mud Run and Fest (2,000).

These visitor attractions are key economic drivers for both residents and retailers and help cultivate a robust and diverse local economy. They play a vital role in building Apple Valley’s unique and quality character and help make it the most preferred residential community in the region. To support these large crowds, this year Apple Valley will focus heavily on attracting a limited-service hotel, offering visitors quality and convenient overnight accommodations. A new hotel will also help serve the newly opened Victor Valley College Public Safety Training Campus, located in the 6,600-acre North Apple Valley Industrial Specifi c Plan, which hosts training and preparedness programs for public safety offi cials from throughout the nation.

In an effort to promote these activities, Mayor, Curt Emick has emphasized his desire to focus on community partnerships in 2013, “This will be the year of partnerships – with our citizens, our businesses and other local agencies, clubs and organizations operating within our Town. There is much we can do to help others, and opportunities that can benefi t both sides. It’s going to be extremely important this year to bring in partners to help us keep our special events going. They are an important part of our economy, bringing in visitors and adding to the quality of life that attracts new employers.”

Apple Valley will commemorate its 25th year of incorporation in 2013 with a variety of activities focused on an appreciation of our citizens and business partners.

Progress by DesignCity of Adelanto

For 2013, the City has a new project that will help develop the next chapter of the Adelanto story. Located on the southwest corner of Highway 395 & Cactus Road, Cactus Plaza is one the city’s newest development projects for this year. In Phase I of development, a 5,000 square feet Shell gas station/convenience store and a 3,315 square feet Steak ‘n Shake eatery have both been approved by the city’s Planning Commission and Engineering Department to move forward. Phase II of development will include an 18,191 square feet medical facility.

Steak ‘n Shake, the pioneer and market leader

of premium burgers and shakes, has announced a development agreement to bring their chain to Southern California. Founded in February 1934 in Normal, Illinois by Gus Belt, Steak ‘n Shake restaurants were determined to serve its customers the fi nest burgers and shakes in the business, with a 24hr. drive thru facility. Construction is scheduled to begin towards the end of 2013. With nearly 500 Steak 'n Shake restaurants in 22 states, the chain is expanding into new market territories and has chosen the City of Adelanto to be their fi rst in Southern California.

With new dynamic planning initiatives, along with a willingness to move forward, Adelanto’s retail development has the potential to demonstrate what Progress by Design truly means.

19

A Professional Perspective of our Community

St. Joseph Health, St. Mary

Breaks Ground on New $261 Million Medical Center

It’s a new era for healthcare in the High Desert. In 2012 St. Joseph Health, St. Mary broke ground on its new $261 million medical center.

The new St. Joseph Health, St. Mary Victorville campus is designed with a Level 3 Trauma Center – the fi rst in the High Desert – and 128 private rooms. The new campus is located on 98 acres off of Interstate 15 in Victorville.

When the new medical center opens in 2016, the Apple Valley campus will continue to operate as an acute care hospital. Together the two St. Mary campuses will have 340 beds, and care for approximately 225 patients each day including more than 216,000 outpatient visits a year.

The construction of the medical center is expected to bring 1,235 construction jobs to the High Desert, or an average of 309 per year for the four year construction period.

The new medical center will bring quality health services closer to High Desert residents living in the west portion of the valley. Along with the medical center, the fi rst phase of the campus includes a medical offi ce building and ambulatory care center. Later phases will add retail, hotels, recreation and a spiritual care center – all designed to care for the whole person.

Keith C. Metzler Asst . City Manager, Victorville

The past year has brought a steady stream of commercial real estate activity in the City of

Victorville. In 2012, retail rebounded in a big way with Walmart completing construction on a 193,000 square foot center. The Mall of Victor Valley is in the fi nal stages of a facade facelift along with an expansion of two of its anchors. JC Penneys completed construction on its new 100,000 square foot anchor location in October and the fi rst Macy’s in the High Desert will occupy the other anchor, which is set to open in March.

St. Joseph Health, St. Mary’s broke ground on a $260 million hospital and trauma center that opens in 2016 and will bring more than 1,200 construction jobs to the area in the next 4 years. Industrial development continues with Church & Dwight, Arm & Hammer’s parent company, moving into a 450,000 square foot manufacturing and distribution facility in July.

December ended on a high note with Newell Rubbermaid completing construction on a 176,800 square foot expansion of their facility at Southern California Logistics Airport. The updated facility is now over 584,000 square feet and the company will add 60 more jobs in 2013 because of the expansion.

Oliver ChiCity of BarstowAsst . City Manager

The City of Barstow believes that there is much to be

optimistic about as we begin 2013. Signs of an economic turnaround can be found when looking at statistical data and when considering the projects that are underway in the community. From a statistical perspective, one measure that illustrates how a community’s economic health is trending can be seen through tracking the area’s median income levels. In the 2000 census, the Barstow area had a median income level of $35,069. As of the 2010 census, the median income levels for the Barstow area had increased around 37% to $48,042. This data means that the quality of the jobs in the Barstow area is improving and points to a positive trend for the local economy.

In addition to the statistical data, the City has been working on several important economic development projects that have the potential to signifi cantly improve the overall quality of life in Barstow. Current signifi cant projects that are underway in the community include the Wal-Mart Supercenter Expansion, a 28-acre site located at the southeast corner of East Main Street and

Montara Road, which is set to include a 200,000sf Wal-Mart Supercenter, and fi ve separate 2,800-30,000 SF Retail & Restaurants. During the past several months, City staff has been working with representatives from Rothbart Development to coordinate the environmental and permitting approval process for the Super Wal-Mart project. It is anticipated that the Draft EIR will be brought before the Planning Commission for certifi cation in March 2013, and projected to break ground by the end of 2013.

Other developments are the Barstow Casino & Resort Project, and Barstow Industrial Park. The Barstow Casino & Resort Project, which is being pursued as a partnership project between the Los Coyotes Band of Cahuilla & Cupe�o Indians and Bar West Gaming, is still a viable initiative that is in the review process. If all approvals are obtained, the overall casino project could be constructed in 2013 or 2014. The revival of the Barstow Industrial Park project will span over 1,174 acres and is located around 3 miles northwest of Interstate 15. The City has been working with the project developer regarding future plans for the location. Discussions are currently underway regarding infrastructure concerns, utility coordination / installation issues, and the potential of obtaining rail-spur access for the site. The City will be working with

23

the developer during this next year to coordinate and implement the solutions needed to ensure that the Barstow Industrial Park becomes the high desert’s premier logistics, manufacturing, and distribution hub.

For a more detailed report on these developments please contact Oliver Chi at: [email protected] or visit www.barstowca.org

While the overall economic situation is still challenging, the current projects in the Barstow area that are either underway or in the planning process illustrate that Barstow is at the crossroads of opportunity... Where the best is yet to come.

20

High Deser t Market Pulse

• Coldwell Banker Commercial’s Land Specialist Mehdi Mostaedi sold 340 acres located in the Mojave National Preserve to an undisclosed buyer, representing both parties in the transaction .

• Coldwell Banker Commercial’s Industrial Specialist Janette Wehrmann sold a 16,800 square foot industrial building located in Adelanto to Hernandez Trucking Company for $755,000 . Janette represented both the buyer and seller in the transaction .

• Coldwell Banker Commercial’s REO Specialist Josh Rey represented the seller of a 5-unit apartment complex located in Victorville . The property, previously condemned by the City of Victorville, was sold to an investor through auction .

• A very well maintained 4 unit Multi Family complex with long-term tenants at 14908 Ritter, Victorville sold for $200,000 by Coldwell Banker Commercial’s Multi Family Team; Bob Basen and Mehdi Mostaedi .

• Coldwell Banker Commercial’s Mehdi Mostaedi and Bob Basen completed a transaction for the sale of the Vern’s Mobile Glass business opportunity . A former employee, who will continue to operate the business, purchased the company; which has been a locally owned operation since 1957 .

• A 14,000 square foot set of offi ce condos was sold in Stanton, CA by Coldwell Banker Commercial’s Josh Rey . The listing was sold to an investor .

• Coldwell Banker Commercial’s Land Specialist Mehdi Mostaedi and Bob Basen sold a 4 .21 acre parcel zoned for commercial industrial business park use in Adelanto, on Hwy 395, representing the seller & buyer in the transaction .

• A 1,060 square foot retail building w/ billboard was sold to a local investor for $48,571 . Josh Rey represented both parties in this bank owned auction .

• Coldwell Banker Commercial’s Josh Ray represented the buyer and seller in the sale of a 2,600 square foot single tenant building on US Hwy 18 in Apple Valley . The building was sold to a local investor for $80,000 .

BUSINESS BRIEFS

• A 4 .05 acre land parcel was sold by Coldwell Banker Commercial’s Mehdi Mostaedi; representing both buyer and seller . The property was located on Chamberlaine in the City of Adelanto .

• A 19,000 square foot offi ce building located along Sage Street in Victorville’s Civic Center area was sold from a bank to an investor . Coldwell Banker Commercial’s Josh Rey represented the buyer in the transaction .

• Coldwell Banker Commercial’s Industrial Specialist Janette Wehrmann secured a long-term lease for a 12,000 square foot industrial building located in Adelanto . The long-term lease was signed by Cast Aluminum Melters; a family owned company . Wehrmann represented both parties .

• Coldwell Banker Commercial’s Mehdi Mostaedi represented the buyer & seller in the sale of a 5 acre residential lot in the City of Victorville . The property was located near Highway 395 and Eucalyptus Road .

• A 4-Unit Multi Family REO sale was made at 18125 Poinciana Rd . in Adelanto for $130,000 . The sale was facilitated by Coldwell Banker Commercial’s Mehdi Mostaedi and Bob Basen, and was purchased by out of the area investors .

• Coldwell Banker Commercial’s Bob Basen and Mehdi Mostaedi sold 4-Unit Multifamily Homes on 18242 Cherimoya Rd ., Adelanto . The listing was sold to an out of the area investor .

• Coldwell Banker Commercial’s Mehdi Mostaedi and Bob Basen facilitated the sale of a 5,000 square foot industrial building at 15353 Anacapa in Victorville . The property was purchased by a local business owner /investor .

• Coldwell Banker Commercial’s Mehdi Mostaedi and Bob Basen sold an 8,000 square foot industrial building at 15361 Anacapa in Victorville . The property was purchased by a local business owner /investor .

• Farmers Insurance expanded to 12061 Jacaranda in Hesperia . Walt Wehrmann Offi ce Specialist at Coldwell Banker Commercial represented the landlord & tenant .

Coldwell Banker Commercial Victorville, California

New Tenant Spotlight! Cast Aluminum Melters (Adelanto)

Cast Aluminum Melters recently expanded their company from a 5,000 sf building to a 12,000 square foot warehouse, in the Industrial Park of Adelanto. The company is a family owned business, owned by Edwin Vinas. Not your average bottle & can recycler, Cast Aluminum Melters specializes in heavy cast aluminum recycling, and is one of the few companies in the western region of the United States that specializes in their trade.

Coldwell Banker Commercial’s marketing team had the privilege of speaking with son, and right-hand man Eric Vinas about some of their process. Eric explained an example of how they salvage complex/ heavy

duty items, such as diesel or airplane engines, “The item is fi rst stripped down of all components. The aluminum materials are then melted down and condensed into a cube, where the aluminum is then sold to other manufacturers who recast it in molds for various product use. The remaining metals & plastics from the initial item are sorted out and redistributed for various recycled uses as well.”

Coldwell Banker Commercial’s Industrial specialist Janette Wehrmann recently closed the deal for this long term tenant, and we wish Cast Aluminum Melters the best of luck in all their future endeavors.

21


Economic Report

This Coldwell Banker Commercial Research Report reviews the changes in economic trends from the start of the last recession through November 2012. Changes in Employment during the 2007-09 Recession are compared to changes in the 1990-91 and the 2001 Recessions. Changes in California’s Personal Income during the 2007-09 Recession was also examined and compared to increases in population.

This resulted in some interesting insights and unexpected conclusions. The fi rst is that the population of California which has been increasing at the rate of 357,000 per year will likely continue at that rate even if a recession were to happen in 2013 or 2014. This will also be true for Southern California and the Inland Empire. The second fi nding is that California’s Per Capita Personal Income, which decreased about 5.4% during the last recession, may not increase by more than 1% per year from current levels during the remainder of this decade. This would represent a lowering of expectations regarding future household incomes and a change in household shopping patterns. The third conclusion is that the absorption of the excess vacant housing units in Southern California, due to the growth in population and therefore the number of household creations may cause a suffi cient increase in residential home prices by 2015 to signifi cantly increase in construction activity in the Inland Empire. The exact timing is open to discussion; but the fact that it will occur at some point is beyond a doubt. A meaningful portion of this residential development will occur in the High Desert. Finally, with the exception of the Inland Empire, the employment in the four other counties in Southern California is recovering at approximately the same rate as the rest of the United States. California simply lost 2.5% more of its pre-recession employment than the rest of the United States, primarily because the housing bubble was far greater in California. Employment in the Inland Empire will accelerate as housing development ramps up.

Gross Domestic Product (GDP) and Personal Income (PI)Fig.1 depicts each of the fi ve economic variables as an index based on their highest values in this economic cycle. The U.S. GDP, the U.S. and California’s Personal Income indices were based on constant 2005 dollars. Hence, the change in the index between the peak and any other point in time approximates the real percentage change in each economic component.

The Great Recession started in December 2007 and ended in June 2009. It lasted 18 months. The U.S. GDP declined 4.7% from Peak to Trough. By comparison, during the 1981-82 Recession, which lasted 16 months, the U.S. GDP declined 2.7%. The U.S. economy peaked in the 4th Quarter 2007 at

100.0 before declining to 95.3 percent of the GDP in the fi rst quarter of 2006. By the end of the 3rd Quarter 2012 the nation’s GDP had rebounded to 102.5, which is 2.5% higher than before the start of the recession and refl ects a 7.4% rebound over 3.25 years or approximately 2.1% per year. This average annual rate of growth is low by historical standards; but more and more economists are claiming it will be the new normal for at least the rest of this decade.

Because California’s GDP is not readily available on a quarterly basis, the Personal Income for the state was depicted along with the Personal Income for the U.S. While the Personal Income for both the nation and California peaked in the 2nd Quarter of 2008 at 100.0. The Personal Income for the nation tracked fairly well with the U.S. GDP and with California’s Personal Income. Both the U.S. and California’s Personal Income continued to decline for another quarter after U.S. GDP bottomed out. The Index for the U.S. Declined to 94.1 in the Third Quarter 2009. The Index for California dropped to 91.4. For the three years thereafter the Personal Income for both the U.S. and California increased. At the end of the 3rd Quarter 2012, the Real Personal Income Index for the U.S. reached 99.4 while the Index for the state rebounded to 98.1. In both cases the Index was still slightly below the 2nd Quarter 2008 peaks. This is indicative of the depth of the recession and an anemic economic recovery in spite of trillion dollar federal budget defi cits and extremely accommodating monetary policy.

EmploymentPayroll Employment for the U.S. increased through the 4th Quarter 2007 to 100.0 before declining to 93.7 in the 4th Quarter 2009; whereas Payroll Employment in California plateaued at 100.0 in the 2nd Quarter 2007, before declining to 91.1 in the 1st Quarter 2010. From peak to trough employment levels in the U.S. declined by 6.36% while the levels in California declined by 8.83%. Most of the additional 2.47% decline is attributed to the collapse of the housing markets in California, the magnitude of which was substantially greater than the rest of the nation. By the Third Quarter 2012 the employment Index for the U.S. rebounded to 96.8 while California’s Index recovered to 94.5. The recovery of employment in California is tracking with the U.S.; but it is still approximately 2.5% below national levels, due to the fact the tremendous number of jobs lost in residential construction, real estate and fi nance have not started to be replaced.

LIGHT AT THE END OF THIS LONG ECONOMIC TUNNEL: PERSONAL INCOME AND POPULATION GROWTH FOR CALIFORNIABy: Ronald J. Barbieri, Ph.D., CPA

22


Economic Report

California’s Personal IncomeFig.2 Table-A summarizes the changes to California’s Personal Income from the peak in the 2nd Quarter 2008 through the 3rd Quarter 2012. At the start of the Great Recession, California had an annual Personal Income in 2005 dollars of $1.503 trillion. By the 4th Quarter 2009 it had bottomed out at $1.374 trillion. This represented a decrease of 8.63%. By the 3rd Quarter 2012, California’s Personal Income had rebounded to $1.475 trillion which was 1.9% less than the peak of the last economic cycle. Table-A also depicts the components of the state’s Personal Income and the changes in its composition over the last fi ve years. In a sense the components of Personal Income refl ect the sources of income for all the households in California.

In the 3rd Quarter 2012 Transfer payments from the government to individuals less State Unemployment Benefi ts equaled $219.3 billion on an annual basis. This represents a real increase of $26.9 billion or 14.0% in household income over the 2nd Quarter 2008. Transfer payments, which include Social Security, Medicare and Medicaid Payments as well as food stamps and other forms of assistance, have consistently increased over the four years. The State Unemployment Benefi ts increased by 87.9% or $4.8 billion in the 3rd Quarter 2012; but they are half the level they were in the 4th Quarter 2009. Household income from Dividends, Interest and Rent, decreased by $50.8 billion or 16.3% over the 4 year period. Total Wages and Salaries decreased by 2.5% or $19.3 billion. Proprietor’s Nonfarm Income decreased by 6.1% or $8.5 billion since the start of the recession. Proprietors’ Farm Income increased by $3.3 or 66.0% over the pre-recession level.

Other Labor Income increased by $2.4 billion or 1.4%. Personal Contributions for Social Insurance declined by $12.6 billion or 10.9%. Because this is a deduction to Personal Income, a reduction in this category actually increases Household Income. Increases in Transfer Payments from the government and a reduction in Personal Contributions for Social Insurance have been the primary offset to the reduction in Household Income from Dividends, Interest and Rent, Wages and Salaries and Proprietors’ Nonfarm Income.

Since the start of the Great Recession the population of California grew by 3.5% even though the Personal Income decreased by 1.9%. This suggests California’s Per Capita Personal Income decreased by approximately 5.4% over the four year period ending with the 3rd Quarter 2012. This decline in Household Income has not been equally shared. In general, households with unemployed or underemployed workers, small business owners and wealthy individuals suffered most of the decline in income while employed workers, especially government employees, individual owners of farms and those receiving welfare payments and unemployment benefi ts on average experienced an increase in their household income.

EmploymentFig.3 depicts the percentage change in employment by month from three months before the start of each recession through the end of the recovery. The three recessions depicted on the chart are for the economic downturns that occurred in the years 1990 and 1991, 2001 or 2007 and 2009. The three series identifi ed with either a blue line, blue dashes or blue dots refl ect the changes in employment related to the 1990-91 recession expressed as a percent of the pre-recession employment levels for the U.S., California or the fi ve county Southern California Region. The 1990-91 Recession was caused by reductions in military and defense spending as well as by the collapse of the real estate markets due to substantial overbuilding, most of which occurred in California, Arizona, Texas, Florida and Nevada. During this recession, many of the Savings & Loan’s (S&L’s) and some banks in those states were forced to close. From 1992 to 2005 home prices in Southern California declined by 30%. Yet, this was a moderate recession for the U.S. as a whole. The national employment levels declined by a maximum of 1.48% and had fully recovered 32 months after the start of the recession. That state experienced a long and deep recession.

California’s employment levels declined by a maximum of 4.15%, which represented a loss of

TABLE-‐A: CALIFORNIA'S PERSONAL INCOME FROM THE PEAK OF THE LAST BUSINESS CYCLE TO END OF THIRD QUARTER 2012 (IN MILLION OF 2005 DOLLARS)

Change from % Change from2nd Qtr. 2008 2nd Qtr. 2008

Personal Income Catagories 2nd Qtr. 2008 4th Qtr. 2009 3rd Qtr. 2011 3rd Qtr. 2012 3rd Qtr. 2012 3rd Qtr. 2012

Transfers less State Unemployment Benefits 192,455 204,913 213,852 219,340 26,885 14.0%State Unemployment Benefits 5,503 19,925 14,579 10,343 4,840 87.9%Dividends, Interest and Rent 312,572 231,079 254,713 261,729 (50,844) -‐16.3%Total Wages and Salaries 785,701 725,150 751,028 766,427 (19,274) -‐2.5%Proprietors' Nonfarm Income 140,588 123,904 128,101 132,044 (8,544) -‐6.1%Proprietors' Farm Income 4,971 6,261 8,485 8,254 3,283 66.0%Other Labor Income 177,481 170,836 176,962 179,921 2,441 1.4%Less: Personal Contributions for Social Ins. (115,651) (108,348) (100,701) (103,040) 12,610 -‐10.9%Misc. (131) (34) (82) (142) (10)

Total Personal Income 1,503,490 1,373,686 1,446,936 1,474,876 (28,614) -‐1.9%

Percentage Change in Constant Dollars 0.00% -‐8.63% -‐3.76% -‐1.90%

23


Economic Report

488,000 jobs from a pre-recession Payroll Employment base of 12.5 million. The loss in jobs was not completely replaced until 63 months after the start of the recession. The impact of 1990-91 Recession on California was substantially greater than the nation. The impact of that recession on Southern California was even greater; and it took substantially longer for that region’s economy to recover. Employment levels had decreased by 7.77% at the trough and it was not until 85 months after the start of the recession before the employment in Southern California exceeded pre-recession levels. The loss of employment occurred over the fi rst 41 months after the start of the recession. This was longer than typical because the cutbacks in defense and the military continued through 1994. Home prices in the southland bottomed out in 1995; but they did not begin to increase until 1997. Home prices in The San Francisco Bay Area stabilized and recovered two years earlier.

The collapse of the Dot.Com boom and the resultant decline in the stock markets triggered the recession of 2001, which are refl ected by the three red line graphs in the Chart. The United States and California experienced similar declines in employment. The peak to trough decline in employment for the U.S. was 2.04% in the 30th month after the start of the recession; while for the state the maximum decline of 2.46% occurred in the 29th month. The nation replaced all the jobs lost by the 48th month; and the state achieved this milestone the following month. Southern California experienced a very mild recession because it was only marginally involved in the expansion associated with the internet boom. Its employment declined by 0.99% in the 11th month after the recession started; and the jobs it lost were completely replaced by the 33rd month.

Changes in employment due to the Great recession of 2007-2009 are refl ected by the green graphs. The recession began as a correction to the residential housing industry and the excesses of the fi nancial institutions. However within six months it spread to all segments of the U.S. economy. Within 27 months of the start of the recession employment in the U.S. had declined 6.36%; and in November 2012, 60 months after the start of the recession, Payroll Nonfarm Employment was still 3.03% below pre-recession levels. California suffered a greater decline in employment because the construction of residential housing in the boom years of 2003 through 2006 represented a substantially greater portion of the state’s economy that it did in the nation. 27 months after the recession began California’s employment had declined by 8.83% or 1,341,000 jobs. In November 2012 it was still 5.16% below pre-recession levels. Southern California, which had a substantially greater proportion of residential development than the state experienced a cumulative decline in employment of 9.77% by the 28th month after the start of the recession. In November of this year it had only rebounded to 6.75%.

Over the last two years the creation of jobs in the U.S. has been proceeding at a slower rate than California as a whole. Southern California is recovering at about the same rate as

the nation. If there were no recession in the next three years, a simple extrapolation of current trends suggests both the U.S. and California would replace the remaining jobs that had were lost over the next two years and Southern California would require until the end of 2015.

Some economists compare the cumulative rebound in employment for California, Southern California and the Inland Empire to that of the United States based on the jobs replaced since the start of the employment rebound as a percent of the total jobs lost during the recession. Fig.4 illustrates such a comparison for the 2007-2009 Recession. After 34 months the U.S. recovered 52% of the jobs it lost. California replaced 42%, Southern California 31% and the Inland Empire only 11.9%. The economists generally conclude that California, Southern California and the Inland Empire are not recovering to the same extent as the nation. This is not a valid conclusion because these three areas have experienced substantially greater declines than the United States and therefore to divide the jobs created for an area by the number of jobs lost understates the relative rebound of the areas that suffered the greater declines.

Fig.5 compares cumulative increase in employment since economies started to recover as a percent of the pre-recession employment levels. Over the same period the U.S. employment increased by 3.34% of its pre-recession level. California increased by 3.66%; Southern California increased by 3.02% while the Inland Empire experienced a 1.46% increase. Though they are

-‐10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

Percen

t of Pre-‐Recession Employm

ent

Months A6er the Start of the Recovery from the Recession

Percent of Loss Employment Replaced by Geographical Area by Month Since Start of the

2007-‐2009 Recession Recovery

United States California Southern Calif. Inland Empire

-‐1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

Percen

t of Pre-‐Recession Employm

ent

Months A6er the Start of the Recovery from the Recession

Cumula<ve Percentage Increase in Employment by Geographical Area by Month Since Start of the

2007-‐2009 Recession Recovery

United States California Southern Calif. Inland Empire

24


Economic Report

not on the chart, the cumulative growth for Orange County was 3.69%; San Diego County increased by 3.94%, Los Angeles County increased by 3.03% and Ventura County increased by 2.75%. It appears the higher income areas along the coast experienced a rate of increase greater than the U.S. while the lower income areas such as the Inland Empire experienced a slower rate of growth. This is to be expected. Urban growth typically begins in the higher income areas then gradually expands to the outlying areas of the metropolitan area. California and Southern California have been replacing the jobs lost during the recession at approximately the same rate as the nation, even though there has been minimal increase in residential construction in California and its real estate and fi nancial markets are still substantially depressed. The employment growth of the Inland Empire will continue to lag the coastal areas until residential construction become economically viable.

Economic ForecastsThe December 2012 Wall Street Journal Economic Forecasting Survey of approximately 50 economists resulted in the following forecasts: The unemployment rate in June 2013 is expected to remain unchanged at 7.7% even though the economy will add 1.8 million jobs in 2013. The economists’ consensus forecasts of GDP were lowered from the prior month’s survey. The annual increase in Real GDP for 2012 was estimated to be 1.9% increasing to 2.3% in 2013, 2.8% in 2014 and 2.9% in 2015. This refl ects low to moderate growth expectations. Infl ation is expected to remain muted through 2013. Short term interest rates were forecasted to remain close to zero through 2014, while 10-Year Notes are expected to increase from 1.67% at the end of 2012 to 2.88% at the end of 2014. This is consistent with the Federal Reserve’s announcement that it will keep short term interest rates low. The economists thought the odds of a recession in the next 12 months were just as likely as faster growth.

Housing starts were projected to be 980,000 units in 2013 compared to 780,000 units in 2012. Housing starts for the U.S. historically have fl uctuated around 1,500,000 units per year. There is a need for more housing units in some geographical areas of the U.S. However, A. Gary Schillings, one of the few economists in 2006 that predicted the problems in the housing market and the respective impact on the U.S. economy, estimates there still are approximately 2.0 million excess vacant housing units in the United States, which will continue to depress residential construction in some U.S. submarkets, including the Inland Empire.

Economists employed by government and fi nancial institutions are very reluctant to predict a recession. It is not good for their careers. As an alternative the institutional economists typically become less optimistic in their growth projections until it become evident to everyone that the economy is in a recession. At that point the economists start to estimate the duration of the recession and the timing and shape of the recovery.

No one knows whether or not the U.S. will slide into a recession in 2013. Factors that could contribute to a recession include the decline in exports to Europe, because it is in a recession; as well as debt and budget problems of some European counties that could negatively impact the U.S. fi nancial institutions. Also, China’s economy appears to be headed for a “hard landing” that would continue to reduce the demand for commodities worldwide and its demand for U.S. exports. The unstable governments in the Mideast could lead to a disruption in the supply of oil and an increase in fuel cost. Finally, political decisions by federal politicians could increase taxes and regulations and reduce spending in a manner that would trigger another a recession.

There are also factors working against a recession. The U.S. government is currently defi cit spending at approximately $1.1 trillion per years. The GDP of the U.S. economy is $15.6 trillion. It is diffi cult to fall into a recession when the annual federal defi cit is 7.0% of the nation’s economy. In spite of all the rhetoric, it is not likely politicians in Washington will reduce the level of defi cit spending in the next couple of years. The private sector’s discovery and production of more oil and gas in North America and the United States is also having a positive short term effect of the nation’s economy in spite of efforts by the environmentalists to curb production. The cost of energy from gas has been declining. Lower energy costs and increases in automation are also starting to bring manufacturing jobs back to the U.S. Finally, transfer payments will most likely continue to expand and support the economy in the short term. While such extreme levels of defi cit spending will create problems in the long term it may enable the United States to avoid a recession in the short term.

Some of the Economists that focus on the longer term are of the opinion the U.S. economy will grow at an average rate of 2% per year through 2020. This would be substantially less than the 3% average annual growth rate from 1950 through 2007; however it does represent positive growth which is something a number of countries in Europe may not experience over the remainder of this decade. The primary reason for this low rate of economic growth is the fact fi nancial institutions and households in the United States have to reduce the amount of debt that they accumulated over the last 20 years. It is generally accepted that the U.S. banks and households are overleveraged and that they have already begun to reduce their outstanding debt as evidenced by the increase in their equity positions and the higher savings rates for households.

For planning purposes, it would be prudent to assume a lower growth rate for the rest of this decade for both the U.S. and California’s economy. Both economies will likely experience at least one recession before the decade is over. The average business cycle lasts approximately fi ve to six years. If there were a recession in 2013 or 2014 it could set the stage for a faster rate of economic growth in the second half of the decade.

Population

In spite of such economic downturns, the population of the United States is expected to increase by 0.8% per year while California is expected to grow by approximately 1.0 %. The latest U.S. Census Bureau estimates indicate the Population of the United States increased by 2,326,224 or 0.75% between July 1, 2011 and June 30, 2012. During that same period California, with all its fi nancial problems and anti-business policies, grew by 357,497 or 0.95%. Births over deaths (Natural Increase) accounted for 270,739 of the population increase. Net International Migration added 132,593 while a Net Migration - Domestic reduced the state’s population by 44,541. California’s population trends have been consistent since the April 1, 2010 census. During the last 27 months the population increased by 787,474 with essentially the same component proportion increases. Prior to the recession Natural Increases in California accounted for approximately 310,000 of the annual increase. The Great Recession has reduced this by 40,000. Net International Immigration is accelerating; but it is not due to an increase in illegal immigration. In fact, illegal immigrants have left California to migrate to other states or their country of origin, because of the lack of job opportunities in California.

Nielsen-Claritas (Nielsen) (see Fig 6 on next page) estimated the population for California to be 37.7 million as of January 1, 2012. The population of the state increased by 464,000 over the 21 month period or 265,000 per

25


Economic Report

year since the April 1, 2010 U.S. Census. Nielsen projected California’s population would experience an annual increase by 260,000 over the next fi ve years. This is 97,000 less than the increase in population estimated by the U.S. Census Bureau for the year ending June 30, 2012. Most likely Nielsen’s projections are conservative; nevertheless they provide some insight into the population projections for the various counties in Southern California and the High Desert. Southern California is expected to grow by 141,455 per year over the fi ve year period ending December 31, 2016. The three counties along the coast are projected to increase by 60,697 while the Inland Empire would increase by 71,581 of which 49,026 would be in Riverside County and 22,554 would be in San Bernardino County. High Desert in the northern portion of San Bernardino County is projected to experience an annual population increase of 8,121. This would be 30% of the High Desert’s annual population growth between 2004 and 2006. It also refl ects the lack of residential construction activity which delivered 7,500 homes during that period.

Given the average household size for the Inland Empire is 3.2 individuals; it would require approximately 22,400 housing units to accommodate the annual population increase in the Inland Empire and 2,500 units to house the projected population growth in the High Desert. Current construction levels for the Inland Empire are approximately 8,000 units. For the last few years less than 200 units were built per year in the High Desert. Because of the excess

POPULATION LEVELS AND CHANGES IN POPULATION BASED ON NIELSEN-CLARITAS ESTIMATES AND THE 2010 CENSUS

4/1/2010 Pop. Change Claritas Claritas Projected Annualized

City or Area

Total Population per

Census

Census to 1/1/2012

(21 Months)

Total Population

1/1/2012

Total Population

1/1/2017

Population Change 2012-

2016

Population Change 2012-

2016

High Desert Population 430,266 16,684 446,950 487,557 40,607 8,121

San Bernardino County 2,035,210 40,858 2,076,068 2,188,839 112,771 22,554 Riverside County 2,189,641 89,370 2,279,011 2,524,143 245,132 49,026

Inland Empire 4,224,851 130,228 4,355,079 4,712,982 357,903 71,581

Los Angeles County 9,818,605 41,738 9,860,343 9,983,520 123,177 24,635

Orange County 3,010,232 27,445 3,037,677 3,115,318 77,641 15,528

San Diego County 3,095,313 36,610 3,131,923 3,234,588 102,665 20,533

Three Coastal Counties 15,924,150 105,793 16,029,943 16,333,426 303,483 60,697

Ventura County 823,318 9,078 832,396 858,236 25,840 5,168

Imperial County 174,528 4,965 179,493 193,149 13,656 2,731

Santa Barbara County 423,895 2,197 426,092 432,460 6,368 1,274

Southern California 21,570,742 252,261 21,823,003 22,530,277 707,274 141,455

California 37,253,956 464,337 37,718,293 39,018,295 1,300,002 260,000

ConclusionsIf the real GDP of the U.S. and California grew at an average of 2% per year for the next decade, that level of economic growth could continue to support the current level of population growth without a decline in the average standard of living from present levels. If California’s Real Personal Income were on average to increase at 2% per year and the Population increased at 1% then California’s Per Capita Personal Income would increase at approximately 1%. It is highly unlikely that California will experience economic decline over the next decade. There may, however, be some redistribution of income and wealth, which will benefi t some and reduced the after tax income of others. This will be a burden for those adversely affected.

The population of California and its sub regions will likely expand over the remainder of this decade at rates that approximate recent levels. Net International Immigration will likely remain relatively high, which provided it is not illegal could bring benefi ts to the state. This growth in population is expected to continue at present levels regardless of whether or not there is a recession in 2013 or 2014. Even though California’s Per Capital Personal Income may decline somewhat during the next recession it will not signifi cantly reduce the number of household formations attributed to the increase in population. Also, the number of households in California was compressed during the Great Recession. It is unlikely there would be a signifi cant reduction of households in the existing population due to another recession, because there has been little unbundling of households in California since the start of this economic recovery. Also, as employment levels increase over the next few years the number of individuals per household is expected to decrease and

accelerate household formations and the demand for housing.

If a recession were to occur in 2013 or 2014 it would postpone the recovery of California’s Personal Income and the state’s employment levels. Personal Income and employment could suffer another decline before resuming its march towards a complete recovery. This would create additional hardships for some households. If it does occur, the recession would likely be moderate in both its depth and duration. Without another recession California’s Personal Income would probably exceed its pre-recession levels in constant dollars sometime in 2013. With a recession it could be delayed another year or two. Without a recession the jobs loss in Southern California would likely be replaced by the end of 2015. A recession could defer a complete recovery of employment for another couple of years.

Nevertheless, the residential markets in California, Southern California, the Inland Empire and the High Desert could experience suffi cient price increases over the next three years to economically justify substantial levels of construction, because the expected increase in population could absorb most of the excess vacant inventory of housing units by as early as 2015. Even though a portion of the employment lost in the Great Recession may not be replaced by 2015, the population growth in California may bring the residential markets back into equilibrium by 2015. Of course, this assumes of course homebuilders would not overbuild in the interim. The exact timing of when this would occur is uncertain; but the fact that it wou ld occur is not.

inventory of vacant homes construction levels are expected to remain depressed into 2014; but once the excess inventory is substantially absorbed home prices will have appreciated to the level required to economically justify new construction. There is a strong possibility that construction levels would ramp up to deliver these levels of fi nished units as early as 2015. Such a grow in residential construction would create construction jobs as well as increase the employment levels in real estate, fi nance, engineering, architecture, as well as in the industrial sectors that manufacturer and supply construction products. This would go a long way towards replacing the loss of job in California caused by the collapse of the housing markets.

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30

Coldwell Banker Commercial’s real estate professionals, Mehdi Mostaedi and Bob Basen coordinated the sale of Vern’s Mobile Glass in Victorville. Located in one of the fi rst buildings ever built in the industrial park on Anacapa Road in Victorville, Vern’s Mobile Glass has been in business in the High Desert since 1957. Mehdi Mostaedi and Bob Basen represented both the buyer and seller during the transaction. In fact, the buyer of Vern’s Mobile Glass, Vicki Langley, once worked for the previous owners, Vern and Mickee James, as a Vern’s Mobile Glass employee. Langley, was excited when she found out there was an opportunity to purchase the business. With the combination of Coldwell Banker Commercial’s vast experience and commercial agents with a strong history in the High Desert, Mostaedi and Basen were able to coordinate the sale in less than 60 days. “This was a very exciting sale for both Mehdi Mostaedi and myself. While the newest marketing techniques are our primary means of sharing new

available properties, we have networking and our relationships in the community to thank for this one. With our history in the High Desert, Mostaedi and I were able to spread the word about Vern’s Mobile Glass at the right place and the right time, successfully connecting the buyer and seller. Even more thrilling was the history the buyer and owner shared,” stated Basen. Mickee James is extremely happy that the business that bears her late husband’s name will continue under Vicki’s ownership. “I am extremely grateful that Vicki came along at the right time, when we decided to sell Vern’s Mobile Glass. Each and every one of our employees will be staying with the company under Vicki’s ownership, and we know Vicki and Vern’s Mobile Glass have a bright future ahead,” stated James. With experience and existing relationships with current employees and the original owner, Langley is excited to carry on the business with the same mission and vision her old boss once had.

Coldwell Banker Commercial Brokers Sale of Vern’s Mobile Glass

local and national fi nancial institutions, working directly with banks on behalf of buyers and even representing banks who are selling. For example, in December Josh represented a fi nancial institution selling a 5 unit apartment in Victorville that had been previously condemned by the city. Josh was able to assist the fi nancial institution by thinking outside the box, selling the property non-traditionally by auction to an investor.

With the REO market remaining very competitive into 2013, Josh’s expertise in assessing the market and providing sound advice for making a competitive offer that will get noticed is even more important for savvy investors.

research of the market and are looking for creative fi nancing options to secure the few remaining industrial buildings still available in the High Desert. 2012 also saw owners offering more fl exible and customized leasing options to attract or keep quality tenants.

Another trend taking shape in 2012 by end users is expanding current facilities to accommodate more product. Newell Rubbermaid successfully expanded their facility at Southern California Logistics Airport in 2012, adding almost 180,000 square feet of space. Reid Products in Apple Valley also bypassed moving into another facility and expanded its current facility on land they already owned in 2012. In Adelanto, Induction Technology Corporation expanded its operations on-site instead of moving locations. This trend is especially important to the local workforce, which not only retains the jobs that each company is already producing but also will benefi t from hiring demands created by the local expansion.

Next year, activity in the industrial market is expected to increase as the rest of the Inland Empire runs out of viable industrial space and the vacancy rates push down further in the Victor Valley. Investors are already looking at the area for possible industrial development opportunities and that trend is expected to continue into the fi rst part of 2013.

REO Transaction cont.

Industrial Report cont.

Professional Plaza / Beach Blvd in Orange CountySold by Josh Rey

Cover Article cont.

2012 to avert the new tax laws. In the High Desert, this has led to a strong 4th quarter in 2012 and an increase in demand for most sectors in Commercial real estate.

As the country transitions into 2013, the uncertainty in the market this past quarter should subside. Consumer confi dence was hit hard in December 2012 with the Consumer Confi dence Index falling to 65.1 as the impending “fi scal cliff” crisis was in full swing. Even so, consumer confi dence is still trending higher for the year and is expected to increase in the fi rst quarter of 2013. The High Desert is poised for a strong start in 2013, continuing the trends of 2012

that included high demand, reduced inventory levels and low vacancy rates.

Another bright spot for 2013 is the renewed attention the region has received from national retail chains in the past year. Companies such as Panera Bread, Beef O’Bradys and Ulta Beauty made their fi rst splash in the High Desert market this year while other retailers such as JoAnn Fabric & Craft and Walmart recently expanded to new locations. As retail continues to pick up in 2013, the overall Commercial real estate market in the Victor Valley will see a net positive impact across the board.

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REO Transaction cont. from pg.16

Industrial Market Watch cont. from pg.2

Josh ReySenior Sales Associate

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Coldwell Banker Commercial • Victorville, California MEET THE TEAM!


Michelle WhitmanMarketing Coordinator

Danielle BairdPublic Relations


Jack HightowerSales Associate

Walt WehrmannVice President | Broker Associate

Becky LewisProperty Manager

Tracy McKinleyProperty Manager

Janette WehrmannVice President

Ginger MoreTransaction Coordinator

Bob BasenSales Associate

Townsand CropseySales Associate

Emelie KwonBroker Associate

Jason LamoreauxPresident / Broker

Chris LamoreauxChief Operations Officer

Katie HolmesSales Assistant

Mike TealMarketing Coordinator


Wayne SoppelandWater Rights Specialist


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Documents

2012 Year End Review - Coldwell Banker Commercial NRTrealestatesolutions-victorville-ca.cbcworldwide.com/... · 2013. 1. 30. · 2013 REAL ESTATE SOLUTIONS HIGH DESERT MARKET WATCH