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An Investors' Dream or Just a Mirage?

Time will tell if those buying dirt-cheap in Newberry Springs really had the smart money.

September 10, 2006|Mike Anton | Times Staff Writer

NEWBERRY SPRINGS, Calif. — Ashraf Fahim insists he is not a gambler. Yet when he decided to begin betting on real estate, he headed straight to the high-stakes table in California's remote desert.

Two years ago, as some experts cautioned that soaring housing prices were creating a market bubble, the Egyptian-born pediatrician borrowed about $400,000 against his Riverside home and began buying dirt -- dirt-cheap.

Fahim concentrated his purchases on an area he felt was undiscovered, a skull-scorching stretch of sagebrush and farmland 20 minutes east of Barstow where, until recently, land could languish on the market for years until it sold.

That was before Fahim and other speculators swooped down on Newberry Springs.

"Sometimes you do things in life and you don't know why you're doing it," said Fahim, 42, who bought several parcels for a few thousand dollars an acre -- a few for just hundreds of dollars an acre. "Even my wife was yelling at me, 'Why are you buying all of these things?' I told her I didn't know. It was just all very cheap."

As analysts debate whether the real estate slowdown will result in a soft landing or a crash, investors are trolling for bargains -- and a big score -- in the middle of nowhere. One such hot spot is Newberry Springs, a vast, unincorporated area in the Mojave Desert that's home to just a few thousand people spread out in homes on large parcels.

Last year, $15.6 million in real estate sold in the ZIP Code encompassing much of Newberry Springs, nearly seven times the amount in 2000, according to DataQuick Information Systems in La Jolla. Figures through July are on pace with last year.

Buyers run the gamut, and include small developers betting that urban refugees will buy luxury homes on private man-made lakes, and a dentist whose license revocation and bankruptcy inspired him to put a down payment on a chunk of desolation. There Boulos Maksemous, who's licensed to practice dentistry again, intends to build the Dream Pyramid, a hotel modeled after Las Vegas' Luxor resort.

"God meant me to have this land," said Maksemous, who sought investors this year through a newspaper ad (he didn't get any) and is pursuing a franchise deal with a hotel chain (he hasn't heard back). "I need to build the hotel. It will be bigger and better than the one in Las Vegas."

More common are people like Fahim, small investors who lament not jumping into the market when Riverside was inexpensive, Fontana was a bargain and Barstow was considered too far east.

"They're looking for hidden gems, overlooked things," said Patrick Duffy, an analyst with Hanley Wood Market Intelligence, a Costa Mesa-based real estate consulting firm. "It seems speculative. But God bless them, because that's how people make money."

Or lose it. The desert has a history of real estate dreams evaporating in the blazing sun. California City, incorporated 41 years ago north of Edwards Air Force Base as the state's third-largest city in size, is home to about 12,000 people today. In the 1950s, "waterfront property" on the Salton Sea was hyped by developers until flooding and the stench of algae blooms and fish kills in the heavily saline lake sunk the boom.

Newberry Springs has seen its share of get-rich-quick dreams too. Worm farm scams. Chinchilla farm ventures. Ostrich farm schemes.

"We're gullible out here, I guess," said Fred Stearn, a former New York City police officer who moved to the Mojave for its clean air and has been brokering land in Newberry Springs for a quarter-century.

In the face of Southern California's cooling housing market, investors cite a litany of reasons Newberry Springs is poised to attract national home builders who will significantly drive up the value of their mostly vacant land. Among them: job growth and planned Indian casinos in Barstow, a new water pipeline to the California Aqueduct and far-from-certain plans for a high-speed train linking Las Vegas and Orange County.

Ironically, the high-speed train idea helped fuel Newberry Springs' last real estate boom, in the 1980s, said Joseph W. Brady, a high desert land broker whose company tracks the region's economy. When the bust came in 1990s, the value of outlying vacant land plunged about 80%.

Brady worries it's happening again.

"Why would anybody in their right mind build out there now? ... It's almost on the edge of the Earth," Brady said. He believes big home builders may look to such places as Newberry Springs -- someday, but not in this uncertain market.

Berni Ediga insists he is not a gambler. Yet after watching his brother get rich in real estate, he started thinking: Why not me?

"Real estate always goes up," said Ediga, 34, a Carlsbad business analyst who bought property in Arizona, Washington state and his native India. Last year, Newberry Springs caught his attention.

At first he was skeptical. "It's pretty remote country. It's, like, 'Wow, who lives there?' " But after seeing prices soar in the months since his first purchase, he's looking to buy more.

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