The "Buys of Texas" that beckoned California real estate investors in the late '70s and early '80s have dried up as much as the oil industry, and now many of those same investors have headed home.
Seeking gold in them thar hills? More likely seeking the hills themselves. And looking for cash returns on other properties as well.
Often, through syndications, these investors are building and buying, hanging their hopes on a vision of the revived California marketplace.
They left California to escape rent controls and escalating prices, but when the Texas economy slipped, things started looking better back home.
Things are better. California real estate still isn't cheap. Local rent controls are still here. But prices are now more on a par with those in the rest of the country. As Joel Singer, research director of the California Assn. of Realtors, explained it, "Deals are penciling out much more strongly in California now."
And as for rent controls, investors have found that some are quite tolerable. Some even go so far as to exclude new apartments, and this partially accounts for a surge in apartment construction.
Last year, 157,000 rental units were built in California, and that was the highest number since 1963, when 190,000 were constructed, according to Ben Bartolotto, director of the Construction Industries Research Board in Burbank.
Bartolotto expects apartment construction to be down about 15% from last year, "mainly because a lot were brought on stream sooner in anticipation of tax reforms, which have created a lot of uncertainties."
'Whole Big Country'
Even with these uncertainties and the expected construction drop, though, investors, developers, researchers and consultants alike paint a rosy picture of the Golden State.
Like Robert Charles Lesser, a Beverly Hills consultant.
He says that the California marketplace is "a whole big country all by itself, and there's no reason for anyone to leave even Southern California. You could spend a whole life just managing, building and investing in Southern California. In terms of growth, move over, move up, move down, rehab--It's all right here."
No doubt about it, California has a lot going for it. Like Texas, it's in the Sun Belt, but unlike Texas, which is so dependent on the oil industry, California has a diversified economy.
Stanley Ross, co-managing partner of the certified public accounting firm of Kenneth Leventhal & Co., said from his office in Century City, "It's not only true that California investors are returning to the state, but the rest of the country is also looking at California because the economic indexes are fantastic here on all fronts."
It is strong in the defense, tourism, service and entertainment industries. "It is the Pacific Rim," Ross said. "It is the financial center of the West. So we're seeing more capital coming in here than in many other places to make the investments."
And California is growing. Kenneth Rosen, chairman of the real estate department (also known as the Center for Real Estate & Urban Economics) at UC Berkeley and manager of real estate research at Salomon Bros. in New York, said that California is growing economically about 3% a year while the nation as a whole is only growing 2.6%.
"It's also the largest state in the country in terms of population and numbers of people employed," he continued. "Of the 98 million people employed in the country, 11.1 million are employed in California. New York is second with 7.7 million employed." California's employment figure would increase to 12.1 million if self-employed people were included.
California has a population of 27 million, he added, and that's growing with the immigration of people from Indochina, Mexico and Central America.
"California's newest feature is its ethnic diversity, which is making new markets," Lesser said.
New people and new markets create demand, which Stephen J. Geiger, Toluca Lake real estate broker/developer/investor, says California has more of than any other state.
"No question about it," he said, "many investors who went out of state, including myself, are coming back because all the areas we went into lacked the demand that California has with its huge population and economic bases. Without demand, you don't get growth in cash flows and appreciation--you don't have stability."
'Building Cycle Missed'
Another reason for the demand, at least for apartments, was suggested by Larry Kates of Standard Investments in West Los Angeles: "Because of rent control, apartment builders stopped building for a few years, so a building cycle was missed in the early '80s. Now there's unlimited demand."
Despite the demand and other pluses for investors and developers in California, the state isn't perfect. As Rosen noted, its income tax is high. "And its educational expenditures are not up to the national average."