STOCKTON — If one is to believe the doom-and-gloomers at the recent convention of the National Assn. of Home Builders, the several large apartment builders based in this Central Valley city might as well forget 1987--and '88, '89 and '90.
Economists at the Dallas convention predicted sharp declines in apartment starts, at least 30% nationally, with murderous declines in some major overbuilt markets.
In spite of the bad news forecast for apartment developers, virtually all of the major builders interviewed here believe that apartments will continue to be built in solid markets in all parts of the nation--and that they will build their share of them.
As Dave Fisher, vice president of Robertson Homes said: "We're happy that the tax act passed. In the past three years so many people got into the apartment business because of the tax angle. You didn't have to be good, they thought, because tax benefits would help you out--even save you. If you were $1 million over budget and didn't collect the rents, you got $500,000 of that back from Uncle Sam."
Stockton is home base to two of the nation's largest apartment builders, A. G. Spanos Construction Inc. and Robertson Homes, 13th and 19th in the country, respectively, according to a ranking of the top 482 builders in the July, 1986, issue of Professional Builder magazine.
The Grupe Co. of Stockton ranked 45th in the same list, while Barnett-Range Corp., ranked 58th. Gibraltar Community Builders, based both in Stockton and Century City, ranked 244th and is a unit of Gibraltar Savings, Beverly Hills. Not ranked is the Nylen Co., founded 11 years ago by James P. Nylen, who learned the development business during his four years at Spanos.
In another ranking, in the May, 1986, issue of Builder magazine, Spanos ranked seventh in the nation, while Robertson was 10th.
Alex G. Spanos, 63, is possibly the main reason why this deep-water port of 190,000 is such a popular headquarters for large developers.
He's suitably modest about his influence: "I'd like to think Stockton people have been a little more innovative than others in other parts of the country," Spanos said. "A lot of the people who once worked for me and have left have done extremely well themselves. This is a big country--big enough for as many (as) want to go out and do it on their own."
Why Stockton? It's certainly not because of any particular tax advantage, and getting to Stockton by commercial airline is not the easiest task. (This is no problem for Spanos: as part of his varied business interests that include majority ownership of the San Diego Chargers football team, Spanos owns the A. G. Spanos Jet Center, which operates aircraft at the Stockton Municipal Airport.)
Perhaps it's because of the city's limited housing construction market--about 2,000 housing starts a year--that Stockton-based firms have become national builders by necessity. Gibraltar Community Developers and Nylen build mostly in California, but most of the other Stockton-based builders are active nationally.
When he was asked the question, why Stockton? native son Alex Spanos answered with another question: "How come American Savings & Loan, the nation's largest, is based in Stockton?"
American Savings, a unit of Irvine-based Financial Corp. of America (FCA), has played an important role in financing many of the projects of the firms based in the city, he said.
As to the future of apartment building, Spanos believes that there is no doubt that last year's so-called tax reform will have a tremendous negative effect.
The new law has taken the incentive away from builders, he said. "Since you can't write off your losses, you better be sure your apartments are cash flowing now."
It doesn't matter if the project is in Stockton, Sacramento, Phoenix, or wherever in the country, a builder must concern himself about a cash flow or otherwise he'll be in trouble going in, Spanos said.
Apartment starts will be down sharply at the Spanos firm this year: "In 1984, we built 14,000 units; in 1985, about 6,000; last year, less than 3,000. This year, and from here on in, I expect to build about 2,000 a year for our own and for investors. Before we build we have to be sure our projects are cash flowing from the start."
The phrase "smart builders will still be around, others will have problems" is anything but a cliche to Spanos. Rent control won't have a dramatic effect because most construction will be in areas free of rent control, he said.
In overbuilt Oil Patch markets such as Texas, Oklahoma and Louisiana, apartment builders are in trouble: Spanos said that it will take 10 years to absorb the apartments in Oklahoma City.
On the other hand, California markets will absorb the surplus apartments in three to five years, indicating that California is not dramatically overbuilt, Spanos said.
Finding Absorption Areas