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Real Estate Outlook 2013

Markets Rebounding, But Job Growth Key To Sustaining Gains

By Joshua H. Silavent - Staff Writer

January 15, 2013 - The real estate industry has faced the toughest of times in recent years, but things stabilized across all sectors in 2012 and 2013 promises modest growth. Single- and multi-family housing continues to rebound well. “Expect slow and steady improvement in the housing market” in 2013, said Gary Painter, director of research at the USC Lusk Center for Real Estate. “There might be a couple dips here and there,” but nothing major, he added.

Meanwhile, the commercial sector is likely to see new construction and improved sales as employment numbers improve. But there are a number of caveats that could inhibit gains throughout the year.

Douglas Park – Activity has been brisk at the 261-acre Douglas Park mixed
use project just north of the Long Beach Airport. The buildings above include
a mixture of uses, from manufacturing and assembly to professional and
medical. Construction will begin this year on several more buildings on the
land at left near Runway 25R. At right is the 159-room Courtyard by Marriott
that is set to open in March. Orange County-based Evolution Hospitality,
which oversees the Queen Mary, will manage the property as an equity partner.
Lakewood Boulevard is pictured at the bottom.
(Photograph January 4 by the Business Journal’s Thomas McConville)

Single-Family Housing: Inventory Shortage Poses Risk Of Pricing Bubble

The local housing industry turned from a buyer’s market to a seller’s market in the last quarter of 2012, said Tammy Newland, operating principal with Keller Williams Realty in Los Alamitos. As inventory crept lower and sales prices made steady gains, the market shifted away from the norm of the past few years.

But the very elements that produced in the market last year now pose a risk to continued recovery. “The biggest thing that we need in order to stimulate the economy is inventory,” Newland said. “We have nothing to sell.”

Banks have been holding onto lots of distressed properties over much of the last year, waiting to release them as sales prices continued upward. There is little expectation that they would flood the market with foreclosed or short sale properties in 2013, but rather will likely strategically unfurl them as the market warrants. Either way, without increases in inventory, “I think we are going to run the risk of having a pricing bubble of sorts,” said Phil Jones, managing partner with Coldwell Banker Coastal Alliance.

Jones said that with increased inventory, the Long Beach housing market could see a 10 percent jump in sales in 2013. “I’m hopeful we will not see price increases above 5 percent,” he added.

There has been some talk recently in Washington of eliminating the mortgage interest tax deduction as part of broader tax reform, but both Jones and Newland said it’s not likely that this politically popular credit will go away. Moreover, both believe the government is all but done with its housing and debt relief programs, which in some ways artificialized recovery rates in prior years. These programs “just didn’t prove to be overly successful,” Jones said.

The luxury housing market continues to remain “hot,” Newland said, particularly as foreign and cash investors enter the market. Additionally, these same investors have pushed the housing recovery along in the last year.

Interest rates are likely to remain near historic lows throughout the year unless there is dramatic improvement in the labor market. The Federal Reserve has said it will tie rates directly to employment levels. Meanwhile, financing remains difficult to come by for some prospective homebuyers, but banks are slowly easing restrictions. “I think, overall, it’s a reasonably positive view for the next few years,” Jones said.

Multi-Family: Apartment Sector Returning To Form

The multi-family market has fared better than almost any other real estate sector in the last year, and this pattern is expected to hold form in 2013. Low interest rates, an easing of financing restrictions and limited inventory have paved the way for new investors to enter the market.

Western National Realty Advisors recently announced its $46 million acquisition of The Landing at Long Beach, a 206-unit apartment complex located at 1613 Ximeno Ave. Park 4200, a brand new 32-unit complex located at 4200 E. Anaheim St., will be ready for occupancy in February. And Gold Star Manor will celebrate its 40th anniversary this year. It will undergo renovations and also develop an additional five acres of property. Financing remains a sticking point to executing some deals in the multifamily market, but interest rates remain exceptionally low, helping to offset credit restrictions.

All in all, “I believe the multi-family market is really going to come back strong in 2013 for a number of reasons,” said Malcolm Bennett, owner of International Realty and Investments and a past president of the Apartment Association, California Southern Cities, Inc.

For many people, homeownership is no longer viable after the recession, Bennett said, because many who experienced a foreclosure or short sale want no part of re-entering the single-family market. And, ironically, it is these people who make for the best renters. “They have a completely different mentality,” Bennett said, and require less maintenance.

Bennett said his company is testing the market with slightly increased rental rates, adding that now is the time to get a better sense of where the market is and where it is headed in the next few years. If the market can sustain higher prices, it will likely serve to drive more people into homeownership even while keeping rentals a fiscally sound option.

Bennett said he expects to see some new construction in 2013 as developers continue to explore ways to serve young and elderly residents with great amenities to complement great apartment homes.

The Shoreline Gateway project is finally getting back on track in Downtown Long Beach after years of starts and stops. The West Tower, an 18-story building with 221 multi-family rental units and 9,500 square feet of leasable retail space, will go up first. “Our intent is to begin this in the third quarter” of 2013, said Jim Anderson, CEO of Anderson Pacific, LLC, who, through a subsidiary company, is developing the site at Ocean Boulevard and Alamitos Avenue.

Office Space: Unemployment Remains A Drag On Market

Robert Garey, senior director at Cushman & Wakefield, describes 2012 as the year when the office space market stopped trending downward. The fourth quarter saw a lot of activity and a “tremendous amount of jockeying around,” Garey said, as property owners looked to sell office space before the fiscal cliff, and resulting increases in capital gains taxes, arrived.

With some stability finally returning to the market, there is greater potential for a strong rebound in the local office space sector in 2013. Sares-Regis is continuing its buildout at Douglas Park with a mix of industrial and office space that will provide large positive absorption in 2013.

However, with unemployment still high both locally and nationally, “I think it’s going to be pretty much a repeat of 2012,” Garey said of 2013.

Continued fiscal uncertainty in Washington has sellers on edge. “Business needs some certainty,” Garey said. “Those are big issues that need to be solved to bring better clarity and certainty to our path moving forward.”

Finally, Garey said standard rate and concession packages are not likely to see major changes in the new year.

Industrial: The Sit-And-Wait Approach Takes Over

Despite some significant activity in the industrial market in the latter half of 2012, particularly with Sares-Regis’ takeover at Douglas Park, 2013 could be an up-and-down year for the sector. “A lot of people have a sit and wait approach,” said Brandon Carrillo, an agent with Lee & Associates. The fiscal cliff and other economic uncertainties prey on the minds of investors, sellers and buyers. In fact, Carrillo said, more and more businesses are likely to lease property these days. “Unless Congress strikes a deal and we get some more clarity on where they’re going, I think we’re going to see a slowdown in sales and a pick-up in leasing activity in 2013,” he added.

The choppiness seen in the market, therefore, is likely to continue. Steve Warshauer, a senior advisor with First Team Commercial, concurred. He said that there are hotspots and dead zones in the market, depending on where you look. “Torrance is pretty active,” he added. “Areas like Bellflower are very quiet.”

Like the office space market, sales and leases of commercial industrial space are strongly tied to employment, and a delayed compromise on the spending cuts component of the fiscal cliff. “I think the fact that Congress kicked the can down the road is going to cause more people to be hesitant to expand their employee base,” Warshauer said.

Retail: Restaurants Doing Well, Traditional Retail Lags

Traditional retail storefronts have long had trouble finding their footing in Long Beach. Big box chains and mom-and-pop shops alike find it hard to match the sales numbers of competitors in neighboring municipalities. But there has been some recent movement that promises positive results for the sector in 2013.

For example, the Aquarium of the Pacific is adding 2,000 square feet of retail space this spring. And a redevelopment of properties on the northwest corner of 2nd Street and Pacific Coast Highway will bring in new tenants this spring (see photo caption on Page 18 for more information). “I think 2013 actually looks really, really good,” said Doug Shea, co-owner of Inco Company. Loans are a little easier to come by these days, he added, and low interest rates remain a driving force for some to enter the market. Rates, too, are low.

But restaurants represent the real upside in the retail market these days. “You can’t believe the amount of calls I’m getting right now on restaurants,” Shea said.

However, because the cost of constructing a new restaurant remains out of reach for some new businesses, most are moving into existing spaces, Shea said, which does put a bit of a damper on the market. Shea said that Long Beach can’t just rely on restaurants for the long term. “I’d just like to see Long Beach get some normal retail similar to Costa Mesa, Newport Beach and Cerritos,” he added.