Nick Audino speaks at the annual Real Estate Forecast while Lee Ann Eager looks on. Photos by Edward Smith

published on May 10, 2022 - 2:03 PM
Written by Gabriel Dillard

The first Real Estate Forecast for Fresno County since the pandemic sought to sum up the ride the market experienced after coronavirus, supply shortages and war.

The roundtable event hosted by the Fresno County Economic Development Corp. April 21 featured seven brokers from across the Central Valley reporting on their respective industries.

While certain sectors fared better than others, for the most part the story was one of excessive amounts of investment dollars looking for a home but with very limited options.

Flach, president of the Fresno Association Realtors and general manager of the Fig Garden Office of Guarantee Real Estate expects Central Valley housing values to grow 7%-10%, ahead of the forecasted 5%-7% nationally.


Single-family homes

Steve Flach, president of the Fresno Association of Realtors and general manager of the Fig Garden Branch of Guarantee Real Estate, spoke on demand still driving the housing market upward despite climbing interest rates.

A statewide shortage of 3 million units and a shortage of 40,000 units in the county has built pent-up demand that leads to bidding wars. Those excess buyers have kept housing in high demand despite rising interest rates.

The National Association of Realtors reports nationwide an average 4.8 offers on homes for sale. A full 71% of listings are selling above list price.

This as mortgage lenders have increased loan terms.

Flach said Fannie Mae and Freddie Mac weren’t expecting interest rates to hit mid-3% until the end of 2022. Earlier this week, average interest rate hit 5%.

When asked if a bubble is brewing in the market, Flach responded,

“If you asked me this two months ago, it would have been an emphatic ‘no,’” Flach said.

The median sales price hit $400,000 and year-over-year growth has averaged 20%.

“A lot of people can’t afford to buy the house they live in,” Flach said.

There has been an uptick in the number of listings this month, which is good news, but affordability is still an issue.

Ten years ago, 70% of the population could afford the median sales price. Today, that rate stands closer to 40%.

The Fresno Association of Realtors has supported measures streamlining any increase in supply, including new construction, Flach said.

Permit and entitlement fees on infill construction can be $60,000 to $80,000 per lot. Outside of city limits, that range climbs to $80,000 to $100,000.

“If we can minimize some of these fees it would be easier for builders,” Flach said.

Multifamily development in Fresno County has attracted a lot of nationwide investment dollars according to Robin Kane, senior vice president with the Mogharebi Group.



On the rental side, apartment construction has increased to levels not seen since the 1980s, but rents are still climbing at record rates, said Robin Kane, senior vice president with the Mogharebi Group.

Before the pandemic, the problem was not enough apartment construction. Over the last three years, 5,500 units were either added to the market or are close to being added, averaging out to roughly 1,800 units per year. While that’s the highest rate of construction in the past 30 years, during the ‘80s, builders were consistently adding 2,500 units a year.

Most construction has been centered near the Woodward Park area or the downtown urban corridor.

New construction has also been limited to high-end apartment complexes or low-income housing, with an absence of middle-income construction.

In the last three years, rent increases have averaged 10-12% a year. The New York Times reported the Fresno market experienced the highest rent increases in the nation.

Four years ago, a two-bedroom unit went for $800, but today that same unit goes for $1,200 — an almost 50% increase, said Kane.

Those rent increases have brought a lot of interest from outside investors. Investors from Southern California are the largest segment of multifamily investors, making up 65% of buyers.

Much like the single-family home market, investors looking to capitalize on those gains have sustained growth to an almost out-of-balance rate, said Kane.

Capitalization rates describe the rate of return on a property. A complex bringing in $50,000 with a cap rate of 5% means a property is worth $1 million. Higher cap rates mean lower rates of return. Rising interest rates have put upward pressure on those cap rates, which should be slowing investment, but they’re not.

In the two weeks before the presentation, those rates were adjusted three times.

Cost of construction has also increased dramatically. The average cost per unit in 2017 was $90,000-$95,000. Today, that same unit costs $175,000, making it even harder to sustain profitability.

There has already been $150 million in commercial investments in 2022, Brett Visintainer, principal for the Visintainer Group said.


Capital markets

The amount of money pouring into real estate markets has put downward pressure on the returns investors have been hoping for, said Brett Visintainer, principal with the Visintainer Group.

In 2021, in Fresno County, there were $454 million in sales in investment real estate. In the first quarter of 2022, there has already been $150 million.

“This trend is continuing and a lot of that is driven by the amount of people that are trying to get into the market,” said Visintainer.

People have made a lot of wealth over the last five years. With low interest rates, people have been refinancing and putting it back in real estate.

Cap rates have dropped to mid-5% rates, something the Fresno market has not seen before.

Visintainer said he’s seen all-cash offers on properties valued as high as $5 million.

But much like the housing market, a bottleneck was created with investors scared away from certain sectors such as restaurants and moving toward essential businesses.

Grocery, industrial, medical and auto stayed open and attracted a lot of investor dollars.

Visintainer gave the example of a $15 million shopping center in March 2020. Covid hit and scared away lenders. The property anchored by a grocery store came back in the beginning of 2021, garnering 10 offers and now is valued at $16.6 million.

“When you have so much capital and you have so many people going after the same type of thing, you’re going to see that drive,” said Visintainer.

Private investors have also begun competing against institutional investors. Where private capital at one time might have been limited to $10 million, those investors are raising upward of $50 million. Pitted against institutional investors that have shareholders to answer to, those private buyers can accept higher prices based on the expectations of returns and drive cap rates even lower.

But, with low vacancy, low construction and rising interest rates, greater returns on rent are justifying those decisions.

Brick-and-mortar retail still dominates the shopping environment according to Peter Orlando, senior vice president with Retail California.



Retail was one of the real estate sectors scaring investors following the pandemic.

But Peter Orlando, senior vice president with Retail California, said in the first three months of 2022, retail activity has been “as strong as ever.”

Pent-up demand has been fueling the buying and selling of goods and investors are looking to buy into it.

In 2020, Orlando said he conducted one tour of investors looking for property — mostly because of restrictions. But in 2022, he’s done ten tours in the first three months.

Vacancy rates have returned to pre-pandemic levels as have rental rates. Retail growth nationally has grown to 3.5% year-over-year to $4.9 trillion.

While some worry whether bricks-and-mortar will gain back some of the market share lost to e-commerce, Orlando said physical locations are still the place to be.

E-commerce is expected to grow 11-13% year-over-year. But that still only represents 23% of sales, said Orlando.

There are two different kinds of buyers — buyers who know what they want, and shoppers who want to look around.

Small business owners are competing by creating an experience that shoppers still want.

A good experience will justify the going rate for goods.

They are still facing supply and labor shortages. While rising wages are impacting business owners, it’s not the only factor. Business owners who can be flexible with a schedule can attract labor as well.

There has been a lag in construction of new retail properties and the projects coming online are getting occupied.

One of the fastest-growing centers has been Marketplace at El Paseo near Herndon Avenue and Highway 99. The model of big box retailers converging on one location is somewhat of an outlier, and the future of centers such as these “will be interesting,” said Orlando.

What has been hot in retail is off-price stores such as Ross, Burlington and Grocery Outlet. For restaurants, fried chicken has taken the place of fast-fired pizza five years ago.

Pet store sales have also dramatically increased.

On the flip side, drug stores need a reinvention, said Orlando. They grew too big and tried too hard to compete with grocery stores.

“You’re going to see some vacancies,” said Orlando.

Filling those vacancies will have to be a mid-size grocery store such as an Aldi.

Employers are beginning to bring workers back to the office says Beau Plumlee, senior vice president with Colliers International.



Palm Bluffs and northeast Fresno are the still places to go for office space, said Beau Plumlee, senior vice president with Colliers International. But Clovis has also begun attracting interest.

Businesses have begun to return to work and employers are finding people are more productive and collaborative, said Plumlee.

But social distancing has created a desire for more space, and low vacancies have created limited options.

Vacancy rates are sitting around 7.3% where pre-pandemic, they were around 7.7%. At the height of the pandemic, vacancies were around 8%.

Rental rates are following supply and demand and cost of construction have raised those prices.

Leasing rates for Class-A space can be $2.10 a square foot.

Owner-occupied spaces are more toward West Shaw Avenue and near Fresno Yosemite International Airport.

Medical has been driving the office market upward with the biggest growth in the northeast Clovis area. Most of the new construction has been leased up or bought, said Plumlee.

Medical has been finding its way into retail spaces, Orlando added, with offices more and more often springing up in strip malls.

There are some significant projects coming online in the coming years, Plumlee said.

The Fresno 40 project from Zinkin Development will build 300,000 square feet across three buildings in north Fresno. Developers are expected to break ground on the first building in the next 12 months.

At Campus Pointe, Lance Kashian & Co. will break ground on two 30,000 square-foot buildings.

Developers are proposing another 100,000 square feet of space at the Fig Garden Financial Center.

Ethan Smith (left) and Nick Audino, senior vice presidents with Newmark Pearson Commercial, discuss the lack of industrial space left in Fresno County.



While the rest of the real estate market has seen unprecedented growth, the industrial sector has largely come to a standstill — but not for lack of trying.

At 2.92% vacancy, available industrial space has effectively reached 0%, said Ethan Smith, senior vice president with Newmark Pearson Commercial.

For businesses trying to find a home in Fresno or expand, that means nothing available.

Small parcels of land are going for $10 a square foot now. In prime land such as Dry Creek Business Park in Clovis, prices are $20 a square foot where four years ago it was $6.50. And a lot of the land is only for industrial zoning, not including entitlement processes that can take at best 12 months to multiple years, said Smith.

“I can’t plan that far out and I don’t know that many business owners that plan multiple years out,” said Smith.

Lease rates have risen as much as 40% for prime buildings, Smith said.

While it may seem there is land forever, that land is not ready for the kind of development people want.

The Fresno area has 1.1 million square feet in new construction or under construction compared to 3.3 million in Visalia and 13.5 million in the northern Central Valley.

What’s driving the push is e-commerce, which exploded following the pandemic. Over $7 billion was spent in online shopping by Fresno County residents in the last 12 months. And locating a warehouse in the Central Valley gives a shipper same-day delivery to all of California and two-day shipping to the western United States.

Industrial development however, has drawn pushback, said Smith. Concerns about pollution and equity have mobilized community groups to oppose development in areas where companies are looking.

“There is almost religious fervor to demonizing industrial jobs,” said Smith.

Industrial development has played a major role as employer, said Smith. The average warehouse wage is $25 an hour, compared to $20 in retail. Over 20,000 people in south Fresno work in the industrial sector compared to 9,796 in retail.

The push for trade jobs in CTE — career technical education — are “almost exclusively industrial jobs,” said Smith.

On the pollution side, Smith cited an MIT study that found carbon emissions are 36% lower for online shopping versus in-store shopping.

Zoning changes in Southwest Fresno along Elm Avenue have required companies that located there in the past 10-15 years to operate under a special designation called “legal non-conforming use status.” Being zoned neighborhood mixed-use “massively devalued the asset overnight,” said Nick Audino, senior vice president with Newmark Pearson Commercial, EDC chairman and host of the Real Estate Forecast. Audino, like Smith, specializes in industrial real estate.

Business owners now fear the same will be done for south central Fresno in its specific plan, where major tenants such as Amazon, Home Depot and others have located.

The pumping restrictions from the Sustainable Groundwater Management Act are fast becoming a reality according to Sullivan Grosz, president of the Ag Division for Pearson Realty.



The realities of legislation impacting groundwater pumping are quickly becoming a reality, said Sullivan Grosz, president of the Ag Division for Pearson Realty.

Plans to conform to the Sustainable Groundwater Management Act are beginning and farmers are finding themselves having to pick what crops to water.

This need for water has created a divergence in farming land values. Land in eastern Fresno County within the relatively water-reliable Fresno Irrigation District is averaging nearly $35,000 an acre. Land that has only groundwater access, largely in western Fresno County, has declined to an average $12,000 an acre.

In the past, the difference between those two land profiles might be $5,000.

Talk has been around institutional investors looking at ag land, but Grosz said 93% of all California farms are still family-owned.

Those institutional investors want reliable land that can bring in a profit soon, said Grosz. They want land with two water sources and they are willing to spend tens of thousands of dollars on due diligence alone.

Farmers are facing a lot of downward pressure with labor difficulties, rising interest rates and operating costs.

Almonds have taken a dip of late. Where in 2014, the nut could get $4 a pound, it has dropped to $1.65 a pound. Almonds have been the highest grossing crop over the last 20 years. But now, with the nut’s thirsty nature, growers are seeing the need to diversify, Grosz said. Pistachios are trading at $2.50 and citrus can be profitable as well with less water.

Some water districts are being very aggressive in their plans that are coming into place following three years of drought.

Districts are using methods such as satellite imagery to surmise watering levels and fining growers for over-watering.

“This is just the first five-year plan of SGMA. They have to be sustainable by 2040 and it’s likely they’re not done choking down on pumping restrictions,” said Grosz.

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