Construction is underway at the Monarch @ Chinatown in downtown Fresno. The $ 24.6 million project will have 56 units – available at affordable rates when completed. Photo by Edward Smith
Written by Edward Smith
Experts largely see Fresno County reaping the benefits of what the deadly virus has changed culturally. Remote working, an urgent need for housing and the demand for warehouse space have sent millions of dollars to the region. But rising rights costs and shrinking development space have tempered the growth potential.
Industrial real estate was the biggest beneficiary of door-to-door orders with warehouses employing thousands in Fresno and Visalia. But in both cities, the land available and ready to be shoveled has been largely exhausted.
“Fresno County has been the center of people from across the state and across the country looking to expand or relocate,” said Lee Ann Eager, CEO of the Fresno County Economic Development Corporation.
Industrial brokers often say that Eager Fresno has become a hot market. But with vacancy rates of 0.02%, there isn’t much available. The new construction sites are almost exhausted.
Earlier this year, EDC spoke with a company that wanted to bring a 1 million square foot warehouse to the area and 2,500 jobs. Eager had to say no as she estimated the process would take three years when they wanted to be up and running in 18 months.
A land use study conducted by Fresno County officials for 3,000 acres in southeast Fresno will hopefully be submitted to council in January 2022 for approval to begin an environmental impact study to help. that the county can begin installing infrastructure on the ground, thereby speeding up development times for research businesses to locate here. Out of five sections of land, Eager estimates there are around 20 landowners the county should negotiate with for land. Unlike the bullet train, Eager said the county would not use a prominent estate.
In addition, they have started discussions with the San Joaquin Valley Air Pollution Control District to explore the impacts of pollution in the area. Industrial development was a hot topic after community members worked for years to get specific regional plans approved with the City of Fresno. An Amazon sorting center slated to open earlier this year at North Pointe Business Park was only approved after reaching a deal with community organizations to modernize streets and equip homes in order to better resist noise and pollutant impacts from trucks.
Community members in southwest Fresno have often expressed their desire to have more retail outlets rather than developing industrial development at community meetings and planning committee meetings. Eager said retailers had their own metrics on population densities as well as median income in the area before locating. Nonetheless, the initial plans for the 3,000 acres would put commercial zoning around the perimeter to create a buffer zone for communities such as Malaga.
It’s not just industrial development that has been hot in Fresno.
Eager has worked with partners in Los Angeles and the Bay Area, wooing service-type businesses to expand in Fresno County. Unlike industrial land, office space is available. Newmark Pearson Commercial’s most recent industry report in the fourth quarter of 2020 has vacant office space at 10.4% with a 12-month forecast for that number to increase.
New office construction is beset by lenders waiting to see what the future of the service industry holds. The same can be said for most retail businesses, said Alan Rurik and Tom Walker, partners of Capitalize, a commercial loan broker in Fresno.
Companies such as Adobe, Amazon and Apple have all announced that workers will continue to work from home. This has prompted lenders to carefully consider when making loans for new construction, Rurik said.
“It’s not an immediate ‘no’ if you introduce a mall, but it’s kind of a throwback to the blockade and the struggle, it’s like – what is the make-up of tenants, what is the site ? Walker said. “If you can’t tick the boxes, if you don’t have the minimum requirements, you will probably have a hard time getting a loan in today’s environment.”
For malls and offices, lenders want to see tenant mixes and tiered leases so that renewals don’t all happen at the same time. They are also more careful about who is applying for the loans, Rurik said. They want proven developers.
Despite careful scrutiny of retail and office space, Rurik describes the demand for new construction as “very active, even voracious”.
Multi-family construction has taken the lead. Rurik said that ordinary people come to the office to fund multi-family development, whether they are people familiar with the market or new faces trying to get into what has become one of the fastest growing industries today. .
Despite the clamor for housing in California, the cost of laws and green rights has made the cost of development much more expensive, Walker said.
In the case of a construction contract, if the price of a project increases, that developer must find more money to cover the increased equity conditions.
In addition, new construction has been relegated to high-end or affordable, according to Robin Kane, senior vice president of the Mogharebi group. Apartment developers have said the only way to offset rising rights costs is to buy luxury apartments ranging from $ 1,800 to $ 2,200 in rent.
For that, apartment complexes are all fighting over the same tenants, Kane said.
“The problem is in the middle market,” Kane said. “We are seriously underserved, there are no really simple answers without subsidies or chasing after the high end. Subsidies exist to finance affordable housing, but these units are limited to people earning between 30% and 40% of the median income in the area.
Tenants in the middle are fighting over a limited supply. Investors bought single-family homes, which introduced rentals for these type of tenants, but it came at the expense of first-time buyers, Kane said.
New state law opened up the creation of what are often referred to as step-mother units for zoning by law. Kane called it an easy win and expects in some areas of Fresno, like Old Fig Garden with long pitches, development will be doable.
“Instead of looking for a big solution from a big developer, it takes too much time and too much political will,” Kane said. But adding one to two units in single-family lots, multiplied by a thousand, could provide a solution to a housing-desperate state, he added.
Rising inflation could be the big issue in 2022. Fresno Chamber of Commerce President Scott Miller said that, combined with supply chain issues, it is the most pressing issue for the country. small businesses.
For big capital, this has turned investors into durable assets.
The Visintainer Group report on third quarter 2021 business activity noted that the 115 transactions during the period are the highest since 2006.
For that, there is very little to buy, said Rurik. Investors looking to take advantage of the Central Valley’s 1,031 stock exchanges have been forced to take their money to the east coast to find investments eligible for the tax break, Walker said. Rurik added that some are just biting the bullet and paying capital gains when they are low.
Low interest rates have been the determining factor in further development, even in the face of disrupted supply chains and inflation. But with rising procurement costs and duties, if the cost of capital goes up, “it’s going to slow development,” Rurik said.
But if inflation persists, investors may continue to find safe havens in durable assets, Kane said.
“I just hope lenders continue to be disciplined and don’t fund bad deals,” Kane said. “2009 was the single-family home market crash, we don’t want 2022-2023 to be the commercial market crash.
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