Nick Audino, at the podium, was master of ceremony for the Fresno County Economic Development Corporation’s Spotlight on Fresno County 2018 Real Estate Forecast Wednesday at the DoubleTree by Hilton Hotel Fresno Convention Center. The people behind him mostly are fellow real estate brokers, each of who discussed different aspects of Fresno County’s real estate market. Photo by David Castellon.
Realtors and commercial brokers still wince when they talk about how tough market conditions got in Fresno County during the Great Recession.
So it was with seeming delight that experts in various aspects of real estate reported Wednesday to a crowd gathered at the DoubleTree by Hilton Hotel Fresno Convention Center that post-recession improvements to local real estate values seem likely to continue, though in some sectors at slower rates than in recent years.
“This really is a wonderful year to be in Fresno County,” said Lee Ann Eager, president and CEO of the Fresno County Economic Development Corporation, which put on the Spotlight on Fresno County 2018 Real Estate Forecast.
Over the past year, she noted, Amazon and Ulta Beauty have begun building distribution centers in Fresno, and that has raised the city’s profile to the point that other companies – the name of which she didn’t disclose – are “on the cusp” of setting up their distribution centers in Fresno County.
“This forecast will tell you this is finally our year, she told a crowd of mostly real estate, development and finance professionals.
Master of ceremonies Nick Audino shared Eager’s optimism, saying “We’ve had a good run, this real estate cycle, especially over the past seven or eight years. We’ve really seen growth in all sectors — increased absorption, low vacancies, price growth, low interest rates, some national press and attention from occupiers that have previously ignored Fresno, so the spotlight is on us.
But Audino, a broker and senior vice president over the industrial real estate division at Newmark Grubb Pearson Commercial, said to keep that positive momentum going, brokers, developers and local governments will have to work together to stay ahead of the demand for real estate, which should include investing in the infrastructure necessary to remain competitive among businesses looking to start or move.
Here is what some of the experts invited to speak at Wednesday’s event had to say:
“For the eighth year, the apartment sector has broken the previous year’s record in sales volume, in price per unit, in lower cap rates [rates of return] and in the total number of transactions,” said Robin Kane, a broker and senior vice president for the Mogharebi Group.
“If we look at the boom of 2004, we see similarities. Both were fueled by a tidal wave of investors surging into the Valley,” and a surge in jobs and people moving to the Valley, as are occurring now, he said.
Back then mortgage rates were higher, and coastal rents and real estate prices weren’t so high that they forced people to move to the Valley to live cheaper, as is the case now.
“And there were 150,000 fewer people” here back in 2004, Kane said.
Today, the surge in demand her for rental housing is way up, thanks to the explosions of jobs and population growth here, which are prompting new apartment developments, Kane said.
Also on the rise are rental rates in the Fresno area, by 5.67 percent in the last quarter of 2017 compared to the last quarter of 2016. That’s a higher rate of growth than in most of California’s core markets, including the San Diego-Carlsbad, Los Angeles-Long Beach-Glendale, Napa, Visalia-Porterville, Salinas, Stockton-Lodi and Bakersfield metro areas.
Kane noted that Merced county’s 15.23 percent growth in rental rates over the same period is being fueled by UC Merced’s efforts to double its student population by 2020.
Still, he said, “We’re beginning to lose a little bit of steam over the previous years,” so rent growth in 2018 may not be as high as it was last year.
As for multi-family home sales, Fresno County passed the $370 million mark last year, an average of more than $90,000 per unit.
“Year to date, we are already at $160 million,” which puts multi-family home sales this year ahead of this point in any previous year,” Kane said.
“We continue to see strong growth,” with the median sale prices for homes increasing by about nine percent over each of the past four years in Fresno County, said Brandon Gonzales, a broker and owner of Iron Key Realty.
“Going into 2018, we anticipate it’s going to continue to stay very competitive,” with more buyers looking for homes than homes available, which helps boost prices, he explained.
But there is good news for buyers, as expectations are that prices should rise slower this year, in part because mortgage interest rates are going up and could hit 5 percent by the end of this year, Gonzales said.
The lack of cheaper money to borrow may help push some real estate investors out of the market, which could slow the price increases and thin the competition for homebuyers looking for their own homes, he said.
In addition, interest in apartments and condos in the area is “catching fire,” thinning the completion for homes further, said Gonzales, who also is president of the Fresno Association of Realtors.
“The office market has been healthy over the past four years, with a decreased vacancy for four substantial years, and we continue to see it do that,” said Tony Cortopassi, a director for Cushman & Wakefield
But there is a lack of available space in south Fresno, as relatively little construction of new offices has occurred there over the past four years, he said.
“Citywide, there have been some rehabs going on downtown, but the [downtown area] has still been plagued by lower rents.”
The problem is there is a “shadow inventory” off office space and entire buildings downtown that haven’t been retrofitted or undergone needed rehabilitation, so they aren’t on the market, Cortopassi explained.
“The market is doing well but not great downtown. There’s a lot of momentum downtown, a lot of positive things have happened – Bitwise’s expansion, the Guarantee Building sold to State Community College and other developments,” but there are several buildings with significant vacancies, he said.
“The rents don’t justify a lot of work at this point, so rates need to appreciate in downtown,” along with building owners getting good-credit tenants willing to sign long-term leases – five years or so – which might prompt them to make the invest in the rehabs, he said.
Unfortunately, potential tenants other than governmental agencies haven’t been interested in signing such leases fore downtown spaces.
As for north Fresno, office development may be starting to churn again, with some local developers looking at possibly launching multi-story, Class-A office buildings, Cortopassi said.
Terance Frazier, CEO of TFS Investments, Inc., who is heavily invested in downtown Fresno developments, started his speech by clearing up a misconception about the area.
“After 5 p.m., there’s nothing going on downtown,” is what many people believe, he told the audience.
“Well, I will tell you things are changing,” he said, noting the numerous events and Frazier said, noting the night-time festivals and other event’s recently put on there, including FresYes! and AlleyWave, along with celebrations for the Fresno Football Club, the city’s first professional soccer team, and its baseball team, the Grizzlies.
Those drew more than 35,000 people downtown, so “we need to start changing our rhetoric when we talk about downtown Fresno,” Frazier said.
As for the renovations to Fulton Street downtown, the developer said it will take time for gentrification of the neighborhood and for more businesses to fill vacant storefronts there.
Simply put, Frazier said that downtown building owners want higher rents, while tenants want cheap rents, and for now the owners seem inclined to “sit on the sidelines” for now rather than renovate their buildings.
As for housing in downtown, 300 to 400 unites are slated to be built in the next three to four years.
“That’s not going to be enough,” Frazier said, adding that at least 2,000 new units will be needed in the next seven to 10 years.
And once high-speed rail lines from Fresno to the Bay Area and the Los Angeles basin are finished, he said interest in living in Fresno — downtown near the rail station, in particular — may soar to the point that the city essentially will become a bedroom community to those larger urban areas.
Ownership of downtown housing also should become more common in the coming years, as construction of condominiums – probably high-rises — instead of apartments should increase in the coming years.
Commodity values drive the price of farmland, with almonds having driven down prices for farmland prices here over the past couple of years, as prices paid for the nuts have declined, said Stanley J. Kjar, Jr., a broker and senior vice president at Pearson Realty.
Prices had risen for almonds early in the year, but China slapping tariffs on U.S.-produced nuts – in retaliation to tariffs the U.S. imposed on some Chinese goods last month – has resulted in a 20-percent decline in prices paid to almond farmers over the past three to four weeks, he said.
But don’t panic, said Kjar, adding his prediction that the trade dispute with China would be short lived.
“Once we blow through some craziness right now, it’s going to be fine,” he said, noting that almond values and farmland values here have largely paralleled one another since 2013.
And even though the drought is technically over, water remains a big issue in farmland sales, with the best prices going for farms with both surface water access and wells.
“We’ve had a 30 to 40 percent decrease in the price of farmland with ground water only,” Kjar said.
“My forecast for the next year to 18 months is we’ve got stabilizing to increasing prices on farmland with good soil and good water,” while prices for farms with just groundwater seem likely to have their declining values stabilize, Kjar said.