Transcript Inland Empire is in the Expansion Phase

Overview of Inland Empire Metro
Multifamily Property Market
For information purpose only. Not meant as a solicitation or offer.
Thomas Winfield
Jan. 23, 2016
Prediction is very difficult, especially if it's about the future.---Niels Bohr
The Inland Empire Consist of San Bernardino and
Riverside Counties
• Home to 4.4 million people, by 2020 the region’s
population is projected to increase to 5.2 million
residents
• The labor force for the two counties region totals
close to 1.8 million
• Median household incomes range from $54,492
• Median Home Price: $254,200
• Unemployment: 6.1%
• Job Growth (2014): 4.3%
• Cost of Living: 3.7% above nat'l avg
• College Attainment: 20.1%
• Net Migration (2014): 5,120
Topics
• Demographics
• Population Growth
• Education
• The Economy
• Jobs
• Income
• Housing
• Housing Prices
• Rents
• Cap Rates
Assumptions:
•
•
•
•
Primarily Buy and Hold
3+ Years Perspective
Primarily Multifamily
View of Market (MSA) rather than
submarket or property
Key Demographic Points
• The population in Inland Southern California grew by 1.1% from 2014
to 2015—a faster rate than seen in recent years.
• Net migration patterns show that the region is especially attractive to
workers who earn between $40,000 and $80,000 per year.
• Families with children are also moving into the region at a steady
pace.
Population Growth
• Census Bureau data indicates that, from 2007-11,
nearly 35,000 more residents moved from Los
Angeles County to the Inland Empire than moved
in the other direction.
• There was also a net movement of more than
9,000 from Orange County and more than 4,000
net migration from San Diego County.
The region’s population is forecasted to grow by 250,000 by 2018.
Age Distribution of Major Inland Cities
Ages with
the highest
propensity
to rent
The California Population is getting Older, While the Inland Empire is skewed to
the younger end of the spectrum.
People With BA/BS Degrees Have Increased
• High School and higher is at same level as the state overall
• Bachelor Degrees have increased because of net migration
as well as increased enrollment in local educational
institutions.
College
Enrollment
Cal Poly Pomona
20,000
Cal State San
Bernardino
17,000
UC Riverside
17,000
U of Phoenix
8,000
U of Laverne
8,000
The Economy
The IE has the 24th largest economy in the U.S., surpassing both Pittsburgh, PA and
Tampa, FL. The growth rate is on par with other high growth cities such as Austin,
Charlotte, Seattle and Nashville.
Key Economic Points-NY Times, August 4,
2015
• The ports of Los Angeles and Long Beach are busy, and major
corporations are building warehouses, so-called fulfillment centers
and logistics centers to accommodate the growth.
• “We are a natural extension of the ports of Los Angeles and Long
Beach,” he said. “Something like 40 percent of all goods flow through
Inland Empire.”--Jay Orr, the chief executive of Riverside County
• Tens of millions of square feet of warehouse and logistics space have
been built since 2011, and tens of millions more are on the way.
• Trade, transportation, and utilities reported the greatest month-over
gain, adding 12,600 jobs.
Inland Empire Job Growth is 3rd in State
Compared to the state, the quality of the job
growth in the Inland Empire has been better, …,
with 44 percent of jobs in the Inland Empire
paying under $30,000. Statewide, 51.3 percent
pay less than $30,000 annually.---San Bernardino
Sun Jan. 12, 2016
Source: California Employment Development Department
Inland Empire Share of Job Growth
The Inland Empire has
a higher per capita job
growth than any
California MSA except
the Bay Area.
Source: California Employment Development Department; Department of Finance
Household Income
Distribution of Household Income
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
Less than $10,000 to $15,000 to $25,000 to $35,000 to $50,000 to $75,000 to $100,000 to$150,000 to $200,000
$10,000
$14,999
$24,999
$34,999
$49,999
$74,999
$99,999 $149,999 $199,999 or more
Ont
Rvsd
SB
Cal
Median Household Income for US is $53,657
Inland Empire Unemployment Rate Trend
State of California EMPLOYMENT DEVELOPMENT DEPARTMENT
Employment Forecast-
Riverside
San Bernardino
State of California EMPLOYMENT DEVELOPMENT DEPARTMENT
"Forecasting is the art of saying what will happen, and then explaining why it didn't! "
--Anonymous
The Housing Market
The region's affordability is expected to draw more residents and push population
growth higher than other region's in Southern California.
Key Housing Issues
• Affordability in Inland Southern California remains one of the driving
factors in the local economy, and Beacon Economics expects it to
continue to support future growth.
• As long as supply concerns persist in the market for single-family
homes, demand for rental units in the City will continue to grow as
more and more people move into the region.
• With supply as tight as it is right now, the pace of rent growth will
continue to pick up.
The Real Estate Market Cycle for Rental Property
Inland Empire is in the Expansion Phase
Expansion Phase
•
•
•
•
•
Hypersupply Phase
Decreasing Vacancy Rates
Moderate/High New Construction
High/Absorption
Moderate/High Employment Growth
Medium/High Rent Rate Growth
Above Long Term
Average Occupancy
Below Long Term
Average Occupancy
Recovery Phase
Rents are Increasing
Recession Phase
Rents are Decreasing
Key Findings
• The metro’s average effective rent will grow 5.9 percent to $1,236 per
month in 2015. This is the highest annual rate in 14 years.
• Lack of affordability for single-family residences will encourage greater
tenant demand and rent gains in area apartments.
• The highest rents in the metro, near $1,500 per month, were registered in
the Ontario/Chino and Rancho Cucamonga/Upland submarkets with
Corona just a few dollars behind. The lowest average rent was posted in
the Victorville/Outer San Bernardino submarket at $850 per month.
• Strong tenant demand for relatively affordable units supported the highest
rent growth in the 1970s vintage of 7.2 percent annualized through
September. Households rented these units at an average of $1,083 per
month.
Housing Affordability by Counties
Millennial home affordability by Market
Fewer people can afford the surrounding counties.
They are being pushed into the Inland Empire
US RankMetro Area
3
5
7
21
Los Angeles
Orange County
San Diego
Inland Empire
Source: Trulia
% Income for
Mortgage in
Year 1
62.6%
57.4%
53.1%
36.1%
Years to
Median Oct. Projected Annual
Become
Home Value Income Growth
Affordable
25
17
16
3
$514,931
$635,363
$487,343
$282,539
0.8%
1.4%
1.1%
1.2%
Vacancy Rates, Absorptions and Rents
…vacancy rates below 5% are
considered a landlord’s market where
demand justifies higher rent.-National
Association of Realtors
Rent Forecast: In 2015, average effective rents will
jump 5.6 percent $90 to $1,225 per month, a 50-basis
point surge from the prior year when monthly rents
rose to 5.1 percent year over year to $1,160. –Marcus
and Millichap
Cap Rates
2015 Sales of Multifamily Property
Pros and Cons of Inland Empire
Pros
Cons
• Most land owned by State or
Federal Government. This
constrains building.
• Decreasing Gas prices will make
it more affordable for
commuters
• Ontario Airport ownership
returned to the City of Ontario
• Land is cheap(er) so building will
increase.
• A decrease in imports through
the LA and Long Beach ports will
have a negative impact on
growth
• San Bernardino’s Poverty Rate.
Everything Is Relative--Albert Einstein
References
• Bureau of Labor Statistic (bls.gov)
• Forbes Magazine
• Us Census Bureau
• UC Riverside School of Business Administration-6TH ANNUAL INLAND
SOUTHERN CALIFORNIA ECONOMIC FORECAST CONFERENCE
• New York Times Business Section
• State of California EMPLOYMENT DEVELOPMENT DEPARTMENT
• Progressive Real Estate Partners
References
• http://www.huduser.gov/portal/datasets/fmr/fmrs/FY2016_code/2016summary.odn
• http://www.huduser.gov/portal/datasets/fmr/fmrs/FY2016_code/2016summary.odn
• http://www.capoliticalreview.com/capoliticalnewsandviews/go-east-inland-empire-youngsouthern-california-workers/
• http://www.sfrealtors.com/US/Neighborhood/CA/Inland-Empire-Demographics.html
• http://quickfacts.census.gov/qfd/states/06/06071.html
• http://riversideoed.com/resources/city-data/
• https://cityofriverside.maps.arcgis.com/apps/MapJournal/index.html?appid=110d32d2e90a484d
9de5c924e5048867
• http://www.pe.com/articles/percent-766227-growth-county.html
• http://www.riversideca.gov/planning/demographics.asp (Start here for Riverside)