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AV News Briefs - By Frank Donato
 

Frank Donato is a long time Valley Resident and Businessman, and a V.P. Account Manager for Fidelity National Title. Frank currently serves as A.V.E.K. Water Board Director (since 1987), and has served as A.V. Fair Director (1997-2001) and North County General Plan Advisory Council Member (1981-1986). Frank is also a Wine Grape Grower and Consultant and Owner/Partner of Antelope Valley Winery. We thank Frank for sharing his knowledge and unique perspective on current issues!

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Second Quarter 2004 AV News Briefs: May June

May 2004 - AV News Briefs:

AV Breaking News: The City of Lancaster has announced that the Power Center, on Ave J near the Fwy 14, will get a new Super Wal-Mart. Developers Diversified Realty will invest $25M to rejuvenate the center, which as of late, has been "bloodied". House 2 Home and two restaurants failed and closed their doors, and Circuit City moved to Palmdale in what CC viewed as "greener pastures". And of course, last year, Costco relocated to their new Ave L site, near the Fwy 14. Overall, the center is still active, with a Wal-Mart, Food 4 Less, and a 99-cent Store anchoring the west side of the center. DDR, knowing they still have one of Lancaster best retail venues, has decided to do the following to make room for the new 204,000 sq ft Super Wal-Mart: demolish the vacant House 2 Home building, and in it's place, build a new 24,000 sq ft building for the 99 Cent Store; the then vacant, old site for 99 Cent Store, and the old Costco site (vacant), would be torn down and be replaced with the new Super Wal-Mart. The existing Wal Mart, at the north end of the Power Center, would then be available for retail tenants. Hudson's Grill and Love's Bar-B-Que restaurants would also be torn down, along with the China Star, to make room for parking for the new Super Wal-Mart. The first phase of the makeover, the demolition of House 2 Home, will begin by the summer. DDR officials say that the 99 Cent Store could be open by the end of the year with the new Super Wal-Mart open by the first part of 2005. DDR officials say, that once the Super Wal-Mart is in place, 12 retailers say they want to be near it. As of late April, there is no public opposition to the new store. In late May or early June, the environmental impact report will come up for review by the planning commission. Once approved, DDR could proceed with construction. Super Wal-Marts sell groceries as well as their traditional line of items. Wal-Mart is the world's # 1 retailer. Palmdale is also getting a Super Wal-Mart, on the north side of Sam's Club, on 10th St West and Ave O-8.


At the SW corner of 10th St West & Ave O-8, Extended Stay America has announced they will build a 109 room, 3-story hotel. ESA's rooms include living and sleeping areas, as well as fully equipped kitchenettes and computer data ports. On a weekly basis, rooms rent for just under $500. Extended Stay America was founded in 1995 and has 475 hotels in 42 states.


The Palmdale City Planning Commission has given their approval for a 285-unit apartment complex in the Rancho Vista area of west Palmdale. Located on the south side of Rancho Vista Blvd, at 32nd St West, the applicant is Andrew Eliopoulos, which had his first attempt at a 90-unit apartment complex, in the same Rancho Vista area (Rancho Vista Blvd & Ave O-8), rejected last year by the City Council. That 90-unit complex had also received approval from the Planning Commission, but was bounced by the City Council due to strong public pressure from homeowners in the Rancho Vista area. On that rejection, legal action is pending. The land in question, for both projects, is master planned for apartments.


Office Depot, another international corporation, will locate at the 10th St West & Ave O-8, next door to Sam's Club gas station. Office Depot has submitted plans to build a 16,955 sq ft retail store. The site is 1.86 acres and construction could begin within a month. Office Depot sells business office machines and office supplies, much like Staples. Office Depot generates annual revenues of $11B and is an S & P 500 company.

Three industrial builders are seeking approval to buy and build spec industrial buildings in west Palmdale's Fairway Business Park, located on Ave O, east of 10th St West. The three different builders are seeking to put up industrial buildings for future tenants in the 30,000 to 40,000 sq ft range. The builders are seeking to buy the land from Palmdale in the $2.50 psf price range, then recruit tenants after completion. In most cases, these buildings are built as empty shells, then finished off per the tenants requirements.

On July 8th, Jim Gilley will retire as Lancaster's City Manager. Gilley has served in this position from 1981 to 1988, and then came back on board in 1991 to the present.

Population growth figures for 2003 have been released. Palmdale grew 3.2% to a new population of 131,295, while Lancaster grew 2.5% to a total of 129,190.


Don't book any flights yet, but the AV Press, on May 5th, ran an editorial pushing the idea of commercial flights out of Fox Airfield. The article suggested, that smaller aircraft, prop driven, could easily use Fox, which has a 7,200-foot runway and 24 hour refueling. Fox, as of now, is primarily a parking spot for private planes, much like a marina for boats. Scenic Airlines of Las Vegas is trying to start service out of Palmdale, but is being held up by security concerns. The Air Force provides security for the Plant 42 area where Palmdale Regional is located, and as of this writing, the Air Force has security concerns that have not yet been solved.

Rancho Vista, the west Palmdale master planned community, is about to undergo commercial development. The land in question is a "T" intersection at the cross streets of Rancho Vista Blvd and Town Center Dr. According to the owners of the land, a preliminary plan shows that three of the corners could end up with commercial/retail development. The developers have met with a small group of homeowners, who represent many others, to express their concerns that the center will have on traffic, noise, and lighting (at night). The commercial centers would have the look of the Vons's center at RV Blvd and 30th St West. While no tenants have yet to be announced, in general, small retail, fast food, grocery store, and a gas station are the type of businesses allowed, and planned for presently.

At the other end of RV, the west end, at 50th St West & Ave N, Albertson's market has already broken ground on their new market. That 9-acre site, in addition to Albertson's, will have a convenience store, gas station, car wash, & fast food outlet.

AV Follow Up News: The City of Palmdale has approved of a 10-year plan that focuses on growth. Over the next 10 years, the City will spend $602M on various improvements. Most of the spending will be devoted to improving traffic flow in and around the City: the widening of Ave S, from the Fwy 14 to 20th St East (underway now); the intermodal transportation center at 6th St East, near Sierra Hwy (also underway now); the widening and improvement of Tierra Subida, between Palmdale Blvd and Ave S (later this year) to ready Tierra Subida for the new hospital at Ave Q-8; 8 railroad overpasses in the coming years.

The Lancaster Marketplace is making a comeback of sorts. The center, located on Lancaster Blvd, up against the Fwy 14, is now 80% occupied. When it was purchase 5 years ago by Los Angeles based Safco. Capital Corp, the center was only 30% occupied. Some of the newer tenants are: AV Medical Leasing, Home & Garden Florist, Speed Asylum (extreme sports apparel), and The Mercantile Village (an antique crafts store). Property manager, Gail Setser, says that traffic in the center has steadily increased over the past several years. Setser also hopes to have a farmer's market type setup in the parking lot by the spring. The center now has only 11 vacancies.

Although the funds for it won't be available for 4 years or longer, The Cal High Speed Rail Authority is leaning towards including the AV in their 200-mile route from San Francisco to Los Angeles. The AV route, vs the Fwy 5 route, is cheaper, safer, and much more heavily populated. The Bullet train will go up to speeds of 200 mph and make the SF to LA trip in 2 1/2 hours. After a stop in Bakersfield (on the southern leg), the train would come into Palmdale, then Sylmar, before arriving at Union Station in Los Angeles. The City of Palmdale has approved a lobbying budget of $200,000 to try and ensure the route goes through the AV.

Plans for the construction of west Palmdale's new hospital are on schedule, with the facility to open by early to mid 2006. State officials say that the state hiring freeze will not delay the construction process. Palmdale officials say that final plans for the hospital will be submitted to the state by no later than September of this year. The state will then take 12-14 months to return the project to the City. The hospital, being built by Universal Health Services, is located on 10th St West & Ave Q-8, which is south of Palmdale Blvd.

City of Lancaster officials say that expansion and infrastructure improvements on Ave G, from the Fwy 14 to 50th St West, should be competed by July of this year.

Three Springs Corp. is getting set to break ground at the NWC of 45th West & Ave G on 210,000 of "spec" industrial buildings, which will range in size from 7,000 to 18,000 sq feet.

Regent Aerospace, a large refurbisher of airline seats, has announced it will build 6 facilities on 19 acres at the corner of 50th St West & Ave G. Regent Aerospace is based in Valencia, and will create 300 jobs in the Fox Field area.

Economist Jack Kyser says that over the next two years, the ports of Long Beach and Los Angeles, will be overflowing due to a shortage of infrastructure. The point being, that this is an opportunity for the AV to step up and become a point of entry for overseas air shipping. "The AV has the land, aggressive economic development, and a willing workforce." Both Palmdale and Mojave Airports could be used for storing and shipping containers all over the world. Kyser also recommended widening of the Fwy 14 to handle more trucks and improving the rail lines into and out of the AV.

Housing Market: On a macro basis (nationally), March housing starts, at +6.4%, were very strong. Then a week later, new home sales (nationally) confirmed housing starts by posting the strongest one month reading ever, + 8.9%, to an annual rate of 1.23M new homes. Also in March, existing home sales were very strong, up + 5.7% to an annual rate of 6.48M, the second highest level ever. Year over year, existing home sales are up + 12.7%. Next month, we get the first look at how the national housing market is handling higher mortgage rates. As interest mortgage rates rise, I expect to see home prices flatten out. In April, the AV the housing markets did just fine, with resale inventory still remaining to be a major problem- meaning, in many areas of the AV, quality supply is very thin.

For January and February, the most recent period this data is available, AV building permits were up very strong. For Lancaster, Palmdale, and the unincorporated areas, building permits were up 87% the first 2 months of 2004, versus the same period in 2003. Palmdale was up 31% and Lancaster, up a whopping 129%.

The Master's, fairway homes around the Rancho Vista Golf Course, sold out their first phase of 10 homes in ten minutes! The early bird buyers camped out Friday night, April 16th, and put deposits down on the first ten homes in a matter of minutes. The official grand opening was held the following weekend, April 24th. New homesites will be released shortly, with the homes ranging in size from 2,260 sq ft to 3,100 sq feet. The Master's is part of the master planned community of Rancho Vista, which includes schools, parks, and shopping.

Mid Valley Construction, a long time homebuilder in the AV, will build 145 + homes at the SWC of 30th St West & Ave M. The tract will extend along Ave M, from 30th St West to 32nd St West, and be right next door to Los Hermanos. Home prices will start at or near $500,000.

Eliopoulos Construction has purchase 510 paper lots, which consist of the west end of a development known as Joshua Hills. Joshua Hills begins at approx 32nd West and Rancho Vista Blvd, then moves south of the aqueduct, then goes west along the aqueduct and the ridge. Presently, there is no infrastructure south of the aqueduct. Grading and infrastructure work will begin later this year. These homes should also start in the $500,000 price range.

In June, KB Homes will begin home construction in their massive Anaverde project, located on Ave S, west of the Fwy 14. Work on the project's infrastructure is being finished up.

AV New Home Sales: As of April 4th, year to date, 16 homebuilders, in 27 different tracts, have sold 671 new homes. At this pace, this is an annual run rate of 2,576 for 2004. New home sales in 2003 were 1,820; in 2002 homebuilders sold 1,162 new homes.

Outlook: on a historical basis, the new home market still has plenty of room to grow, before challenging the 1990 all-time high volume numbers. With interest rates remaining at, or near, current levels for quite some time, I expect 2004 to be another big year for the homebuilders and AV real estate in general. Due to our larger population base now, versus 1990, it would not surprise me to see new home sales numbers exceed 5,000 per year in the coming years. Five thousand new homes in one year is a historical number, not a wall that cannot be breached. Seven years of absolutely no new home construction in the mid 1990’s built up huge demand, which held down the housing market like a "coiled spring".

Land Market: Supply closed out April at 1,652, down + 3%, which statistically, is NOT a significant move. Supply is 1% above the January 2004 number. If we take a longer view, April 2004 supply is just 7% below April of 2003. In the face or record buying demand (see below), supply is being drawn down in an orderly manner.

Current status: In the context of the very strong demand that we currently have, falling supply is a very bullish indicator. If demand were weak, as in the mid 1990's, and supply were to fall, this would be a very negative indicator; it would mean that many sellers are giving up, and taking their property off of the market. But this is not the case now. As always, I will be watching this indicator closely for any early warning signs that the market "may" be getting into the speculative phase. Presently, with the supply falling off at a very leisurely pace of only 10% or so er year, we are nowhere near that point.

Why is the supply number is important? The market value of all things, eventually, comes down to the basic principle of supply and demand. The supply number helps to tell us the psychological condition of buyers and sellers, by its change and its rate of change. Large drops in supply could be signaling speculative behavior as investors fight it out to get into our market. If supply were to increase rapidly, that could be telling us that buyer's are backing off, and/or, that numerous new seller's are coming into the market. In combining this data with the demand number below, we can assess the current status of the land market. When supply numbers approach historical highs and lows, they can also be useful in signaling major turning points. Example: at the peak of the 1988-90 market, supply made a low in May of 1989 at 587. In hindsight, May 1989 was at or near the point of peak speculation in our market, as demand over-whelmed supply, drawing it down.


Demand: April (263) land sales, set another new monthly record high. Land sales volume is the strongest I have ever seen. April's number was 23% better than the previous month (March), and a whopping 118% better than April of 2003. Land sales volume has risen 6 months in a row now, with the last 4 months each setting, then breaking, a record. Strong volume shows that this market has real conviction, which tells me this market has years to run, not just months.

Current status: Demand for land, both for development and investment, remains very strong and gives every appearance that it will remain so in 2004. Eventually, monthly sales volume will stop setting records, pull back, then go into a consolidation / trading range. When this happens, do not be alarmed; this will be normal and healthy market behavior. Even at 1/2 this month's number, we would still have a very active and liquid market.


The Beginning: Land sales volume began to increase dramatically in April of 2002. For this reason, I am calling April 2002 as the beginning of this bull market in AV land.

- Frank Donato, May 2004

Information presented above has been compiled from reputable sources, and is deemed reliable but not guaranteed. All opinions expressed are those of the Author.


June 2004 - AV News Briefs:

AV Breaking News: The Lancaster Redevelopment Agency is considering the sale of 180 acres on the south side of Ave H, between 80th & 90th St West. The potential buyer is Tarzana, CA based Heller Development Co. The announced contract price is $13.5M, which would be $75,000 per acre. The acreage is divided into 631 paper lots, price at $21,400 per lot. The subject land is zoned R 7,000 for 4 houses per acre, but presently the area lacks water and sewer.


Empire Land and KB Homes, co-owners of the west Palmdale master planned community of Anaverde, want to form a Community Facilities District to help pay for the area infrastructure. Once approved by the Palmdale City Council, Empire Land & KB want to sell $30M in bonds to pay for the first phase of work. Bond proceeds will help pay for traffic, utility, and flood control benefits. Once homes are actually sold, property owners would repay the bonds via their annual tax bills. EL and KB have already spent $48M on infrastructure, with the total costs of phase 1 infrastructure estimated to be $140M. Phase 1 grading of lots has already begun, with 5 builders, KB Homes, Western Pacific, Beazer Homes, Forecast Homes, and Richmond American, ready to offer a dozen different styles of homes. The homebuilders are aiming for winter to have the first homes ready for buyers. The bond payments, which is part of the Mello-Roos program, on a 1,600 sq ft home, is expected to be $1,150 per year. On a 3,600 sq ft home, the increase in property taxes will be in the area of $2,350 per year. The establishment of CFD's is common for large master planned projects.


AV Follow Up News: A state bond issue of $10B, to pay for the proposed high-speed rail system, from San Francisco to Los Angeles, then eventually to San Diego, has been pushed back to 2006. Cal lawmakers in favor of the high-speed rail system, felt that 2004 was not a good year to put this issue before the voters. Gov. Schwarzenegger favors pushing it back ever further, to 2008. With the state deeply in debt, the Gov feels more time is needed to heal the state's balance sheet before taking on new debt.

Here is a brief synopsis of an editorial in our local paper I thought you might find interesting. The State of Cal owns 2.5M acres of Cal real estate. This is almost the size of LA County, which is 2.6M acres. The 2.5M acres totals some 2,000 properties, properties that produce little to no income for the state, and pay no property taxes. The state's holdings include: the Cow Palace in San Francisco, the LA Coliseum, the adjacent Sports Arena, a golf course in Oakland Hills, a strip mall in San Rafael, which includes a massage parlor, a San Diego warehouse with an ocean view, 752 residential units is Sacramento which produce no income, 40 commercial retail units in Sacramento, and 19,100 buildings totaling 180M sq feet. The State of Cal even owns a research facility in Tahiti, which includes 13 boats, and 3 Range Rovers. The editorial went on to say that the State has no database that lists all of its real estate holdings, so the task to figure out the state's entire real estate portfolio could take months! The editorial was making the point, that with Cal in a serious budget crisis, the state should be selling off their real estate to raise capital and generate future tax inflows, and get on track to using a business model to run state govt.

The Southern Cal Assoc of Govts, in a recent study, is forecasting that by 2030, the total population of the AV will be 1.2M. Presently, it is just north of 400k.

You may recall, last year sometime, the Palmdale City Council had approved of putting up some money for a feasibility study on digging a tunnel through the San Gabriel Mountains. The tunnel would exit near the 210 Fwy, near Glendale, shortening the Fwy 14 route to LA by 40 miles. This idea now has legs, as LA County Public Works engineers are recommending the county split the $125,000 cost for the study. The study will address the cost, the time frames, environmental impact, and possible funding sources. One idea has the tunnel as 6 lanes of traffic, with a high-speed train running down the middle of the lanes. No doubt, the cost for this will be in the billions.

Housing Market:

National Housing Market
April housing starts moderated from last month, and were down a bit at - 2.1%. Even so, April housing starts are still 20% better than in April of 2003. April building permits, a leading indicator, was up though, at + 1.2%. This puts housing starts in April 2004, + 11% better than April of 2003. April existing home sales were up 2.5%. There is one troubling number within the existing home sales report though. At the current sales rate, there is a 4.6-month supply of housing, which is the highest level since 1990. April new home sales were down -11.8%; starting to show cracks and the effects of higher mortgage rates. For new home sales, this is the largest one-month drop since Jan of 1994. Median sales price was $221,200 which is + 16.7% higher than one year ago (yr over yr). Most of this weakness was in other parts of the country. April construction spending- rose to a record high of $970.4B, a 1.3% increase, soundly beating the forecast of +.4%. March revised up as well, to +2.4% from the original release of + 1.5%. (Commerce Dept)

AV Housing Market
DataQuick, a real estate information service, says that southern Cal homes, in Q1 of this year, appreciated at the fastest pace in 15 years, May of 1989. DQ says that the median price of a southern Cal home is now $371,000, which is about $200,000 more than in the AV. DataQuick also says that, statewide, median home price were up 22% in April of this year, vs. April of 2003. More homes were sold April of this year than in any other previous April, going back to 1988. Rising mortgage rates have pushed the "fence sitters" into the market fearing rates will be higher in the months ahead.

The Palmdale City Council is considering raising fees on new homes (which is on the builder, then ultimately on the home buyer) to pay for increasing demand on public facilities because of population growth. The proposal is to raise park fees from $1,019 per bedroom to $1,978 per bedroom, on a single-family home. This is an increase of 94%! On a 3 bedroom home, this is a price increase of $2,877, for a total of $5,934. A second proposal to raise fees is called a Public Facility Impact Fee, which if passed, would be $1,107 per new home. Higher development fees will cause one of three outcomes, all of which are not good for the new home market: the home buyer will pay more and get squeezed, the home builder's profit margins will get squeezed, or some combination of both.

According to a study done by the Cal Assoc of Realtors, the median price increase of a home in the AV has risen faster than the median price of homes in the rest of the state, by about 9%. Since April of 2003, the median price of a homein Cal has risen 24.6%. During that same time period, the median price of an AV home has risen 33.2%. Even so, AV housing is still a bargain. In April of 2004, the median price of a home in Cal was $453,590, while that number is only $150,000 to $300,000, varying by area. CAR also says that resale home inventory is now at 1.7 months, versus the 2.6-month level of April of 2003. This level tells us how many months would be needed to sell all existing homes that are on the market. The historical average is between 3 and 6 months.

AV New Home Sales: As of May 16th, year to date, 16 homebuilders, in 28 different tracts, have sold 908 new homes. At this pace, this is an annual run rate of 2,434 for 2004. New home sales in 2003 were 1,820; in 2002 homebuilders sold 1,162 new homes.

Outlook: on a historical basis, the new home market still has plenty of room to grow, before challenging the 1990 all-time high volume numbers. With interest rates remaining at, or near, current levels for quite some time, I expect 2004 to be another big year for the homebuilders and AV real estate in general. Due to our larger population base now, versus 1990, it would not surprise me to see new home sales numbers exceed 5,000 per year in the coming years. Five thousand new homes in one year is a historical number, not a wall that cannot be breached. Seven years of absolutely no new home construction in the 1990's, created huge pent up demand, which held down the housing market like a "coiled spring".

Land Market: Supply closed out May 1,722, up a modest 4% as compared to last month (April). When you factor in that demand dropped in May by 24%, rising supply makes perfect sense. This year, supply has increased 7% as many new sellers have decided to cash in on this strong market. If my theory is correct, that this market cannot top out until supply is significantly drawn down, perhaps below the 1,000 level, then this market has years to run, not just months.

Current status: The fact that we have supply rising slightly this year, tells me that many sellers have figured out this is a bull market and a good time to be selling long held positions. Rising supply, if it were to rise dramatically, would be a negative indicator, but we are not seeing that. What we are seeing are natural fluctuations, from month to month, both up and down. In 2003 and 2004, supply has been in a range of 1600 on the low end, and the high 1700's on the upper end. That is about an 11% band, which is not much volatility. As always, I will be watching this indicator closely for any early warning signs that the market "may" be getting into the speculative phase. Presently, with the supply moving sideways, we are nowhere near that point.  

Why is the supply number is important? The market value of all things, eventually, comes down to the basic principle of supply and demand. The supply number helps to tell us the psychological condition of buyers and sellers, by its change and its rate of change. Large drops in supply could be signaling speculative behavior as investors fight it out to get into our market. If supply were to increase rapidly, that could be telling us that buyer's are backing off, and/or, that numerous new seller's are coming into the market. In combining this data with the demand number below, we can assess the current status of the land market. When supply numbers approach historical highs and lows, they can also be useful in signaling major turning points. Example: at the peak of the 1988-90 market, supply made a low in May of 1989 at 587. In hindsight, May 1989 was at or near the point of peak speculation in our market, as demand over-whelmed supply, drawing it down.


Demand: May (200) land sales, moderated from April's record, but sales volume remains in a strong up trend. The drop in sales volume, from April to May, represented a drop of 24%. Coming off of a record high, this is normal corrective behavior. For the year overall, land sales volume is the strongest I have ever seen. May's pull back in volume breaks a 6-month steak in which volume rose each month. All that said, May sales volume was still 85% better versus May of 2003. Strong volume shows that this market has strong conviction, which tells me this market has years to run, not just months. Last month's forecast is now fact: "Eventually, monthly sales volume will stop setting records, pull back, then go into a consolidation / trading range. When this happens, do not be alarmed; this will be normal and healthy market behavior. Even at 1/2 this month's number, we would still have a very active and liquid market".

Current Status: It's only one month, but it would make perfect sense for this market to cool a bit, and on a volume basis, move sideways for a while. I now expect volume to move into a trading range of 150 to 200 + sales per month, which is still very strong sales numbers. Overall, volume is strong and is in bull market territory.


The Beginning: Land sales volume began to increase dramatically in April of 2002. For this reason, I am calling April 2002 as the beginning of this bull market in AV land.

- Frank Donato, June 2004

Information presented above has been compiled from reputable sources, and is deemed reliable but not guaranteed. All opinions expressed are those of the Author.