But syndicators, those people who put a number of investors into a single project, are finding that California is, as Rosen describes it, "generally, very positive."
It's a ray of sun to an industry that has been weathering some storms. In March, a real estate newsletter published by Stephen Roulac & Co. of San Francisco referred to some of these difficulties, saying, "Problem properties stunned real estate syndicators recently by forcing foreclosures or threats of foreclosure by Balcor/American Express and Hall Financial Group and by contributing to recent failures of two other syndicators."
The newsletter then listed 14 syndicators, including Balcor and Hall, with "publicly disclosed problem properties."
Later, the newsletter said that many of the problem properties are in "energy-related geographic areas," mostly in Texas and Oklahoma, but "they are also widely dispersed geographically." They also included office complexes and shopping centers besides apartments.
Reasons for the problems? The newsletter stated: "While many properties are over-leveraged, they also are overvalued and troubled by high vacancy rates." It also suggested that the "soft, overbuilt real estate market" in some locales was a contributing factor.
Federal tax proposals are another concern to syndicators, because many relied heavily on tax incentives. Dependence on tax shelters helped create problem properties.
Tax Revision Plan
Some tax proposals redefine tax shelters, Ross explained, "so that if you are a limited partner in an apartment building, for example, and you have a tax loss, you can't offset that against your salary." There is also a plan to extend depreciation.
"So investors are being cautious about real yield," he said, "and California investors are looking better, because they are looking less to the tax benefits and more to the pure economics and yield."
As Lesser put it, "If you can't hide behind the tax benefits and must compete with other investors, I'd rather do it in California than Iowa."
California has one thing for Californians that no other state could ever have: proximity.
Feels More Comfortable
Al Sackler, a vice president of West L.A.-based Moss & Co., which has apartment and commercial investments, said that he feels "more comfortable" with projects close to home. Moss & Co. went to Texas when rent controls were being enacted in California but started returning during the past year.
Rodney Delson, a Santa Monica real estate broker and syndicator, decided not to go out of state even when other investors did "because we thought it was prudent not to, from a management standpoint." He likes to be no more than an hour away from his investors' properties, "because we feel that management is a key to a successful syndication."
However, Walter Silber, president of Brentwood Financial Corp. in Westwood, led his investors out of state in the late '70s--"when you couldn't buy an apartment building in California without a negative cash flow," he said--and is just now reentering the California marketplace.
Atlanta His Best Market
"We sold all 35 or so of the apartment buildings we have in Southern California and went out into the hinterlands of Atlanta, Birmingham, San Antonio, Austin, Denver, Salt Lake City, Portland, Ore., Oklahoma City and Seattle, which we're just now entering," he said, "and the results for us were mixed."
The best market outside California for him was in Atlanta, which he called "outstanding," but even so, he concedes, "in balance, we would have probably done as well or better by staying in California."
Building in San Diego
Among others who left the state were Sylvan Swartz, Consolidated Capital, R&B Enterprises, J. D. Alexander and developers Lon Rubin and Alex G. Spanos, who left to build apartments in Texas and other states, although Spanos kept his headquarters in California.
Now Spanos is building apartments again for the first time in five or six years in California, and he's building them for the first time in San Diego, which is considered a very hot apartment market. (Spanos owns the San Diego Chargers.)
Rubin is building apartments for the first time in 12 years in California, after leaving the state to build nearly 8,000 units in Texas, Florida and North Carolina. He's concentrating on several projects in Hollywood.
Swartz, president of the Orange County region, National Assn. of Private Placement Syndicators, is holding onto the properties in Tennessee, New Mexico and Texas that he started acquiring in 1979, but he is now buying apartments and strip shopping centers in Southern California.
Purchases This Year