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Local Land Use Decisions, NIMBYism Are Leading Causes Behind Southern California’s Lack of Housing Production Across Price Levels

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Region is Further Behind Other Locations in Developing Lower-Income Housing; New Study Recommends Zoning Based on Existing Demand 
April 11, 2019— RIVERSIDE, Calif. (www.ucr.edu) — Local land use and zoning laws, as well as opposition to development by residents, are primary obstacles to building badly needed housing across Southern California, according to a new analysis released today by the UCR School of Business Center for Economic Forecasting and Development. The report examines Southern California’s progress under the state’s Regional Housing Needs Assessment (RHNA), which mandates how many and what types of housing units each jurisdiction in California needs to allocate and plan for in order to meet local housing needs at all levels of affordability.
Compared to all jurisdictions in the state, Southern California turns in an ‘average’ performance in terms of complying with RHNA’s reporting requirements but that is not indicative of average or more housing production. The analysis examines the Southern California Association of Governments’ jurisdiction under RHNA, which includes Imperial, Los Angeles, Orange, Riverside, San Bernardino, and Ventura Counties. To date, across these areas, less than 30% of the housing units mandated by RHNA for all affordability levels have been permitted for building.
“Because of the sheer size of the region, that statistic helps to illustrate just how chronically behind most jurisdictions in California are in terms of developing new housing,” said Adam Fowler Director of Research at the Center for Economic Forecasting and one of the report authors. “We’re now halfway through the current 8-year RHNA cycle and ideally would want to see a number closer to 50%.”
Fowler and his co-author Hoyu Chong a Senior Research Associate at the Center, emphasize that the Southern California region studied in the analysis is especially critical because it is home to more than 70% of the state’s population.
Given the dominant share of residents who live in the region, and California’s acute housing shortage, it’s particularly problematic that the analysis finds the area is further behind in producing low- and moderate-income housing. In fact, the only housing units that have seen significant progress, and are closer to meeting the RHNA mandate, are units that are affordable for those with above-moderate-income levels. Across the six-county Southern California jurisdiction, more than half (52%) of these units have been permitted compared to just 9% of very-low-income, 9% of low-income, and 16% of moderate-income units. Looked at another way, 77% of all the housing units permitted within the region under the current cycle have been for the above-moderate-income level despite the fact that just 42% of the units mandated by RHNA are allocated for that level.
The same general pattern persists in all of the six counties except Imperial, where just 4% of housing units for above-moderate-income households have been permitted versus 30% for moderate-income households. Los Angeles County has the worst imbalance, with 5 out of every 6 housing units permitted falling within the above-moderate-income level, even though just 3 out of every 7 housing units mandated by RHNA are allocated for that level.
According to the analysis, the key reasons behind the lack of housing production across income levels, but especially among lower-income units, include local opposition to development and local zoning and land use laws that are simply not conducive to developing affordable housing. Within the Southern California jurisdiction, for example, the median minimum lot size is bigger than in the rest of California. Moreover, both the minimum and maximum number of single-family homes allowed per acre is lower, and the minimum unit size is considerably bigger.
“There are some really fundamental obstacles facing Southern California and jurisdictions across the state in terms of developing smaller, denser, less expensive housing,” says Fowler. The study’s authors argue that local jurisdictions should take steps that include redefining housing needs, developing zoning regulations based on existing demand, and aligning housing development with projected demographic changes.
The new report follows an analysis released by public policy group Next 10 that examined all the state’s RHNA jurisdictions and found most to be behind in permitting new homes and significant numbers not participating in the reporting process at all.
The complete analysis, California’s Housing Crisis: Goals and Production in Southern California, is available here.
The UC Riverside School of Business Center for Economic Forecasting and Development is the first major university forecasting center in Inland Southern California. The Center is dedicated to economic forecasting and policy research focused on the region, state, and nation. Learn more at UCREconomicForecast.org

The Inland Empire Business Journal (IEBJ) is the official business news publication of Southern California’s Inland Empire region - covering San Bernardino & Riverside Counties.

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Commercial Real Estate Transactions

DAUM Commercial Completes $16M Sale of 49,561 Square Foot Industrial Property in Corona

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Deal follows value-add strategy with brokerage assisting ​ with upgrades, repositioning in strong Inland Empire market

DAUM Commercial Real Estate Services, a leading provider of commercial real estate services including brokerage, tenant representation, consulting, leasing, sales, and property management, has completed the sale of a 49,561 square foot industrial building in Corona, Calif. The total consideration for sale of the building was $15.99 million.

The property at 1141 California Ave. in Corona, Riverside County, was built in 1988. In 2023, the asset was purchased by PPVS Properties LLC. With the assistance of their Daum Commercial team, the company worked to renovate the property and reposition the site for possible industrial lease or sale.

The free-standing industrial building of over 49,000 square feet sits on a more than 2.5-acre site with ample space for employees, customers, and commercial truck parking. The warehouse building consists of cross-dock loading with four grade level doors and six dock high doors. The property has a fenced-in yard area, an interior warehouse clearance of 24 feet, and a 2,169 square foot office space. The warehouse, office, yard, and loading areas were all fully renovated to a turnkey, move-in position.

With close access to the I-15 Freeway, Ontario International Airport, and the Port of Long Beach, Riverside County is the 10th largest county in the U.S. with a gross domestic product of $115.4 billion as of 2021. These strategic advantages have bolstered the region’s industrial real estate market amid the recent uncertainty in the national economy.

According to DAUM’s Q1 2024 Market Report, Southern California’s Eastern Inland Empire is currently experiencing direct vacancy rates of 5.2% and an overall vacancy of 7.6% driven primarily by an increase in available sublet space. New deliveries of industrial space accounted for 1.6 million square feet with another 5.5 million under construction. Asking rents fell in Q1 to $1.21 per square foot. High interest rates have tempered overall sales with volume in Q1 down 27.9% compared to Q4 2023 with a median per square foot price of $235.89.

Commercial Edge, a real estate data provider, noted that in-place rents increased in February by 12.7% year-over-year across the entire Inland Empire leading the entire country. Between 2021 and Q1 2024 rents in this market have grown by over 60%.

The DAUM Commercial team of Johnson, Joseph Harmon, SIOR; and Noah Samarin, EVP and Principal, represented the seller. Clyde Stauff, SIOR, Jace Gan, and Jackson Marlow of Colliers International’s Orange County represented the buyer, who will use the property to expand their existing flooring business.

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Commercial Real Estate

3PL Providers in the Inland Empire Top Big-Box Warehouse Demand in 2023

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Third-party logistics (3PL) providers leased the most big-box warehouse space in the Inland Empire (IE), accounting for 58.6% of all transactions, the highest of any market in a new report from CBRE.

“The themes of rightsizing and streamlining supply chains, efficiency, flexibility and value stand out in this environment,” said Ian Britton, senior managing director at CBRE. “Companies seem more willing to outsource and utilize 3PL providers to avoid hiring their labor force, expensive set-up costs and capital investment in material handling, technology and automation.”

The IE continues to be one of the most in-demand big-box industrial markets, with leasing surpassing 30 million sq. ft. for four consecutive years. This trend is expected to continue throughout the year as occupiers aim to strengthen their storage and distribution capabilities.

“At the end of the day, it is about reducing delivery times to customers by using a 3PL network of strategic locations to access Southern California’s 24 million people as soon as possible,” Mr. Britton said.

More space became available in IE due to completed construction and tenant move-outs, increasing the overall vacancy rate to 3.7% in 2023. This vacancy rate is still relatively low compared to other cities, ranking fourth lowest in this report behind Mexico City, Los Angeles County and Nashville.

“Most agree that long-term fundamentals look solid, but many IE tenants have available capacity in their warehouses as demand levels have normalized from the pandemic-induced surge,” added Mr. Britton. 

Nationally, industrial construction activity peaked in 2023, with a record 413 million sq. ft. delivered to the market, causing a doubling of the vacancy rate to 6.6%. However, construction in progress dropped to 208.4 million sq. ft. by year end, half of the previous year’s total.

Retailers and wholesalers dethroned 3PL providers across North America taking 36% of all transactions. In addition to retailers & wholesalers, automobiles, tires & parts and building materials & construction also saw an increase in share of leasing activity, which overall fell 15.8% in 2023.

CBRE forecasts a 5% increase in big-box leasing volume in 2024 as current market conditions are favorable to tenants. This indicates a potential rebound in demand, as the market strives to catch up with the robust deliveries of newly constructed industrial spaces.

CBRE analyzed “big-box” warehouses of 200,000 sq. ft. and larger because warehouses of that size are crucial for extensive national and international product distribution. Encompassing the United States, Mexico and Canada, the big-box report found that industrial facilities had higher taking rents than in years past. Rent growth remained robust at 15.9%, but down from 25.1% in 2022.

Of the leasing activity that took place, demand was driven primarily by a desire to boost supply chain resilience, increase access to growing population centers, modernize space to accommodate increased automation and support continued e-commerce growth.

To read the full report, click here.

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Commercial Real Estate

Gantry Secures $17M for Riverside Grocery Retail

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Loan Stabilizes Riverside Neighborhood Center Featuring Ralph’s, Wells Fargo Bank, and Mix of Dining, Service, and Retail Tenants; Lenders Continue to Target Grocery Retail Allocations

Gantry, the largest independent commercial mortgage banking firm in the U.S., has secured a $17 million permanent loan to refinance Magnolia Towne Center, a 133,000-square-foot grocery-anchored retail center offering 10-buildings located at 6033-6189 Magnolia Ave in the city of Riverside, Calif. The neighborhood center features a Ralph’s grocery store, Wells Fargo Bank, Restaurant, and professional services tenants. Ownership is currently in the process of leasing 27,000 square feet at the center, with retail specialists Strategic Real Estate Advisors (SRA) handling the assignment.

Gantry’s James Ruiz, Senior Director, with the firm’s Irvine production office secured the funding of behalf of the borrower, a private real estate investor. The 10-year, fixed rate, life company loan was provided by one of Gantry’s life company correspondents and features 30-year amortization and prepayment flexibility.

According to Gantry’s James Ruiz, “Neighborhood grocery-anchored retail space has remained a prioritized allocation for Gantry’s roster of life company correspondents and many other permanent debt capital sources. This is a well-managed property with experienced sponsorship that was facing a pending CMBS maturity while in the process of backfilling some space at the otherwise stabilized property. Conservative leverage, demonstrated performance, and professional management allowed Gantry to review this loan against several of our top lenders, ultimately landing on a fixed-rate permanent loan that met our client’s legacy investment goals. Notably, the borrower achieved an exceptionally low spread while successfully meeting its objective for cash out without a holdback, a testament to the strategic partnership between Gantry and our valued clients.”

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