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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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Fourth Quarter 2009 Antelope Valley News: Oct/Nov Nov/Dec


October/November 2009

Oct 2nd- Taking over the space vacated by Wickes Furniture at the NEC of 10th St West & Rancho Vista Blvd, Ashley Furniture opened its doors to the public.  Ashley’s is a new retailer in the AV and has invested $300k in remodeling costs into the 42,000 sq ft site.  The store will employ 35.  The store’s manager says that the AV’s demographics are a good fit for their product line.  Ashley Furniture is headquartered in Arcadia, Wisconsin. Each store in independently owned / operated and licensed to sell Ashley products.  An Ashley executive described their line as “quality furniture that everyone can afford.”

Oct 5th- Universal Health Services says that their new hospital in west Palmdale is on schedule to open by May 1 of next year.  At the open, the Palmdale Regional Medical Center will employ 750 full time positions. At full build out that number will rise to 1200 +.  The $200M facility will open with 127 beds, but over time, will expand to 239 beds.  The new hospital is a total of 380,000 sq feet.  The annual economic impact to the AV is projected to be $380M.

Oct 15th- in an effort to rejuvenate interest in developing in the AV, a business breakfast is held at the Hilton Garden Inn regarding information on the AV Enterprise Zone.  About 50 guests listened to development officials from both Palmdale and Lancaster.  Most of industrial and commercially zoned land within the two cities is located in the Enterprise Zone.  The Zone offers various tax benefits and tax credits for locating within the Zone.  Small businesses with 50 or fewer employees make up 75% of the companies using the Enterprise Zone hiring benefits.  Both new and existing businesses qualify.

Oct 19th- The City of Lancaster announces that Ave H, from 60th St West to 80th St West, will get a 48 inch water main installed.  The installation will take 4 weeks.

Oct 20th- Located west of the Fwy 14 at Trade Center Dr & Ave P-4, the Embassy Suites is nearing completion and is expected to open in January of 2010.  At 7 stories, the hotel will hold 150 suites. The hotel is seen as a possible anchor for a future convention center.  Palmdale’s Redevelopment Agency is moving ahead to acquire a contiguous 12 acres for a convention center.  The CC would cost $25M.  The City would not build the convention center until the economy turns around.  In Cal, the hotel industry has been hit hard with foreclosures as well.  In a hotel foreclosure though, the hotel rooms are not lost permanently, as eventually, the hotel just changes ownership, going from weak hands to strong.  But during the foreclosure process and the pending resale of the units, the rooms are lost.  Smith Travel Research says that hotel occupancy rates in California in 2009 was 60.3% and is expected to fall to 55.4% in 2010.  Everyone is planning for a long slow recovery.

Oct 22nd- An east Palmdale Smiths Food King, which has been sitting vacant for almost 14 years, has been sold.  The building is located on the SEC of 20th East & Palmdale Blvd, will be utilized  by Santa Fe based Superior Groceries.  The grocery store is expected to open by the 2nd quarter of 2010.  The market will be a full service food market with alcohol and tobacco sales plus banking, check cashing, and other services. Superior already operates 33 markets in the southern Cal area, with 22 in LA County.  The grocery marketwill use 43,441 square feet of the 74,354 sq feet the site contains.

Nov 4- While speaking at the Quartz Hill Chamber of Commerce, Palmdale Mayor, Jim Ledford, gave a “non-denial denial” over the worst kept secret in the Antelope Valley:  is Macy’s Dept store coming to the AV Mall?  Two major big box sites remain open in the Mall as Gottschalks and Harris’s closed and vacated the Mall earlier this year.  Ledford did say that one of the two sites will be filled soon, the old Gottschalks site at the east end of the Mall.  Everyone expects that tenant to be Macy’s. One clue:  on Nov 1st Macy’s ran an ad in the AV Press for its store in Valencia, an hour’s drive away. Also, Macy’s has taken over Gottschalks sites in Fresno and Visalia.  As is customary, neither Macy’s nor Mall officials will comment on the rumor which probably means that the contract has not been finalized yet.  Mayor Jim Ledford also discussed:

- the city’s NEW Charter status which will allow it to include a local preference in awarding contracts,
  hiring staff, and selecting vendors.  Charter status gives the City a bit more independence from the state.
  Charter status will create more jobs locally.
- the opening of the new Regional Medical Center in May of 2010 and the jobs it will create, some 750
  full time positions.
- the 570 megawatt power plant at 10th St East and Ave M.  Ledford said that he is hopeful that permitting for the plant will be completed next year, at which time the City will seek a partner to build & operate the plant.  The Mayor said that the plant was key to getting more jobs at Plant 42.  It is the city’s plan to offer below market prices for its electricity to attract more business to Plant 42. 
- the city’s efforts to land a passenger air carrier to Palmdale’s Air Terminal.  With two more years remaining   on the contract for LAWA to operate the air terminal, Ledford says the City wants to take it over at that time. Ledford said that AV residents buy 680k tickets per year to fly out of other airports.  Ledford prefers discount airlines such as JetBlue and Southwest Airlines as a good fit for the region. 
LAWA’s lease of the Palmdale air terminal from the Air Force runs out in March 2011.  At that time, or sooner if   LAWA will step out, the City of Palmdale wants to lease the 5,000 sq ft air terminal and have complete control over the air terminal’s future.                         
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Antelope Valley Existing Home Sales

During the 3rd quarter AV foreclosures showed little change from Q 2.  According to RealtyTrac, during Q 3,  5,348 homes in the AV were foreclosed upon or were somewhere in the foreclosure process. Realtors say that there has been no increase in foreclosures, and that if 1,000 homes from the banks were suddenly dropped on the market, they would be bought up within days.  There you have it; at the entry level, in relation to demand, there is a current (and artificial) shortage of houses.  I say artificial because the banks are controlling both supply and price by withholding supply even though there is demand for that supply.  For this reason, a lack of supply, the number of AV resale homes have slowed.  Said one realtor, “The only reason sales are slowing is a lack of inventory.  It is difficult for people to buy when there’s no homes out there.”  MLS housing inventory is at 1,100 on the market, when the norm is about 2,000 to 2,500.  The average sales price in September was $137,478, up $4,000 from August, but still down 26%  from Sept of 2008.  In the entry level market, the $8,000 federal tax credit has been a huge help to first time buyers.  There are some efforts in Congress to renew the tax credit, and even some efforts to improve it.  Seller of high end homes though are still trapped, trapped by falling prices, and by the homebuyers ability to acquire financing. 

Antelope Valley New Home Sales
The data for new home sales listed below, for the years 2002 through 2007, were provided by the Hanley Housing Report.  Going forward, I will begin using a new source for new home sales, The Siracusa Company.

1990-  total of all new homes sold- 4,900 +
1999-  total of all new home sold-    694   (The Siracusa Co.)
2002-  total of all new homes sold- 1,162 (Hanley Housing Report)
2003 - total of all new homes sold- 1,820 (Hanley Housing Report)
2004 - total of all new homes sold- 2,503 (Hanley Housing Report)
2005 - total of all new homes sold- 4,579 (Hanley Housing Report)
2006 - total of all new homes sold- 2,584 (Hanley Housing Report)
2007 - total of all new homes sold- 1,720 (Hanley Housing Report)
2008 - total of all new homes sold-  906   (The Siracusa Co.)
2009 - projected to sell all year  -     756   (Cal Economic Forecast)
2010 - projected to sell all year  -  1,535   (Cal Economic Forecast)
2011- projected to sell all year   -  2,299   (Cal Economic Forecast)

A sign of the times:  On the weekend of Oct 24th, KB Homes opened up two new projects in east Lancaster. The development names are Sedona II (79 homes) and Bedford (55 homes) and will complete the over all neighborhood called Terreno Vista.  To illustrate the condition of the market, KB Homes is only selling the homes on a build to order basis.  KB will not build standing inventory in this environment.  Sedona II homes will run in size from 1,371 to 2,530 sq feet.  The Bedford homes, which have the Martha Stewart touch, run from 1,371 to 2,205 square feet.  Director of marketing for KB Homes says that buyers are more concerned with the number of bedrooms than total square footage in this market.  KB Homes says that the homes will have a 10 year warranty and be 45% more energy efficient than homes built ten years ago.  The homes can be built in 2-3 months, the way you want it.  KB Homes is a “choice builder”, meaning that a base home is offered at a fixed price, but then the buyer can add upgrades as they see fit.  The two projects are located at 32nd St East & Ave K-8.  Through the first 8 month of the year, 348 building permits have been pulled in the AV area, a drop of 54% from 2008.  Since the market peak of 2006, 1,800 construction jobs have been lost in the AV.  
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AV Aerospace & Defense

Oct 8- The Euro version of the unmanned spy plane, the Global Hawk, was rolled out by Northrop Grumman at Plant 42 in Palmdale for pictures.  It is the first Global Hawk to be built specifically for a foreign nation, in this case, Germany.  South Korea, Japan, and Australia have also expressed interest in the unmanned reconnaissance aircraft.  The aircraft is flown remotely by trained pilots on the ground looking into a computer screen.  The Global Hawk, sometimes referred to as a “robot spy plane”, can fly at high altitudes for 30 hours at a time.  If satisfied with the aircraft, Germany has the right to buy 3 more.  The total contract for all four aircraft is $559M, with each plane running about $140M.  After several months of flight testing, the Euro Hawk will make its German debut in mid 2011.  The aircraft will be used to support NATO missions.  

Oct 12- Northrop Grumman says they expect to grow their Plant 42 work force from the present 2,700 to 3,500 over the next five years with all of the growth coming in the fuselage, F-35 Joint Strike Fighter program.  All branches of the military plan to buy 2,400 planes, so the program will be long running. NG’s Palmdale site at Plant 42 builds the mid section of the plane’s fuselage, with final assembly being done by Lockheed Martin at their Fort Worth, Texas site.  It is very common for major defense contracts to be spread around to as many states as feasible to gain as much political support (votes) for the project as possible.  The F-35 is the first aircraft with a common airframe for all branches of the service. It is believed that this will cut down on construction and maintenance costs once the plane goes into service.  The JSF is being built in 3 versions:  conventional takeoffs and landings for the Air Force, a Navy version allowing carrier use, and a version for the Marines that allow the F-35 to hover, and takeoff and land like a helicopter (as the current Harrier fighter can).  Other work ongoing at NG’s Plant 42 site are B-2 Bomber modification work and construction and delivery of the unmanned spy plane, the Global Hawk.  The B-2 work will allow the bomber to drop 80 GPS guided bombs on a single pass, improve the speed of satellite communications by 100X, making battlefield adjustments faster and easier, and the integration of a 30,000 pound bomb delivery system that will allow the B-2 to attack hardened, deeply buried targets.  The Global Hawk program has a smaller workforce, just a handful, but the Air Force wants 54 such planes with the US Navy and the Australia also showing interest.  As mentioned above, Germany has also committed to buying four Global Hawks.  Accurate real time battlefield intelligence is critical to a mission’s success and the Global Hawk provides it.

Oct 13- The Boeing Company has announced they will do flight testing on their new 747-8 cargo freighter out of their Palmdale Plant 42 site.  The cargo carrier is 18 ft longer than the passenger version.  The 747-8 can carry 148 tons of cargo, an additional 16% more cargo versus the traditional 747.  Boeing says they are aiming for a production rate of 1.5 planes per month.  The first 747-8 will be delivered to Plant 42 for flight testing in late 2010.  The intercontinental version for passengers is expected to be delivered one year later, late 2011.

Nov 2- It is well known that Northrop Grumman is building the fuselage for the F-35 Joint Strike Fighter at its Palmdale site at Plant 42.  What is not well known though, is that they are also building the F-35 JSF fuselage for the sale to United Kingdom (England).  NG will build 138 fuselages for the English Air Force. Final assembly will be at Lockheed Martin’s Fort Worth, Texas plant before being delivered overseas. Lockheed Martin’s Palmdale plant produces the radome, stealthy edges, and antennas for the F-35. Northrop Grumman expects their work force to grow from 2,700 to 3,500 over the next five years due to the F-35.  The F-35 is a next generation supersonic stealth aircraft that will replace several different fighter jets and attack aircraft, including the A-10’s, F-16’s, the Navy’s F-18, the Marine Corps 8B Harrier jets and England’s Harrier jets.
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Antelope Valley Land Market
 "Supply and demand, in the end, determines the value of all things." 
     - Adam Smith, "Wealth of Nations" 18th century Scottish economist

Supply closed out October at 1,781 which was 13 more land listings than last month, or a gain of +.7%.  With supply bouncing around and between the 1,750 and the 1,800 levels in 5 out of the last 6 months, the sideways pattern continues from the previous month.  At the current reading of 1,781, we are approaching my long term target of 1,500.  I set this target when it became apparent that the land market was broken and we were headed for a Bear market.  In 2005 monthly land sales volume peaked as prices continued higher throughout most of 2006.  Any market that rises in price, on decreasing volume, is on borrowed time.  In hindsight, 2006 was a year of distribution, investors last  good  opportunity  to unload  positions at or near the price highs.  In August of 2005, when I could not find any parcels that could have possibly met my basic goal when I place an investor, a chance for a double within 5 years, I started to turn buyers away and told them there was too much risk in this market.  Then I started to push all of my sellers that would listen, to sell.  Far too many did not act on my advice.  Now, 3-4 years later, AV land values are 50%-70% lower and many are not holding land, but dead money for years.  Getting back to my supply target of 1,500, this represents a 55% decline in supply from the supply top of 3,308 in October of 2007.  In Oct of 2007 we had 133 land sales, so even then demand was quite a bit stronger.  A 50% retracement of supply was my minimum expectation.  While it will take months to get to 1,500, eventually I do expect even a lower figure, perhaps approaching 1,000.  This is all part of the process of seller capitulation as sellers give up in droves and take their properties off the market.  
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Supply numbers in perspective:
Supply change vs. last month:      +.7%            
Supply change, year to date:       - 15.2%     
Supply in Oct 09 vs. Oct 08:       - 20.2%
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Supply at end  Sept  2009 - 1,781
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Supply at the end of 2008:  2,100
Supply at the end of 2007:  3,134
Supply at the end of 2006:  3,263 (market peak in prices)     
Supply at the end of 2005:  2,264 (market peak in volume)       
Supply at the end of 2004:  1,902
Supply at the end of 2003:  1,607
Supply at the end of 2002:  1,770
Supply at the end of 2001:  1,665
Supply at the end of 2000:  1,800
Supply  in  May  of  1989:    587  (market peak in price)
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Demand- Oct demand (37) was down slightly, 2 sales, and maintains the current Bear market trend of weak land sales.  If one is looking for a silver lining to this cloud, the last two months of sales have been 39 and 37, which is considerably better than the prior 5 months, when we were primarily in the 20’s per month on sales.  This short term strength though, is not the beginning of a trend change.  With the housing market still a major “train wreck”, the land market cannot put forth its own recovery.  Ultimately, the housing market is what drives builder and investor demand for land.  To sum up, we are at the upper range of monthly sales, within the confines of an over all Bear market.  Goal one to improve the overall real estate market is to clean up the housing mess. This is likely to take longer than we can imagine; with various levels of government leaning on lenders to find ways to avoid foreclosing, and numerous other govt taxpayer sponsored foreclosure help programs, the final resolution of the problem is only being delayed.  Most home owners in foreclosure will still lose their homes.  It’s only a matter of when, not if.  When all is said and done, a small percentage will have had their homes saved, but the price for that will be years of delay in letting the market clear the inventory.  Remember, there is no chance for a recovery in land as long as one can buy a house at 30% to 50% below the cost of construction, which is exactly what is happening now.

November/December 2009

Nov 4- While speaking at the Quartz Hill Chamber of Commerce, Palmdale Mayor, Jim Ledford, gave a “non-denial denial” over the worst kept secret in the Antelope Valley:  is Macy’s Dept store coming to the AV Mall?  Two major big box sites remain open in the Mall as Gottschalks and Harris’s closed and vacated the Mall earlier this year.  Ledford did say that one of the two sites will be filled soon, the old Gottschalks site at the east end of the Mall.  Everyone expects that tenant to be Macy’s. One clue:  on Nov 1st Macy’s ran an ad in the AV Press for its store in Valencia, an hour’s drive away. Also, Macy’s has taken over Gottschalks sites in Fresno and Visalia.  As is customary, neither Macy’s nor Mall officials will comment on the rumor which probably means that the contract has not been finalized yet.  Mayor Jim Ledford also discussed:

- the city’s NEW Charter status which will allow it to include a local preference in awarding contracts,
  hiring staff, and selecting vendors.  Charter status gives the City a bit more independence from the state.
  Charter status will create more jobs locally.
- the opening of the new Regional Medical Center in May of 2010 and the jobs it will create, some 750
  full time positions.
- the 570 megawatt power plant at 10th St East and Ave M.  Ledford said that he is hopeful that permitting
  for the plant will be completed next year, at which time the City will seek a partner to build & operate the plant.
  The Mayor said that the plant was key to getting more jobs at Plant 42.  It is the city’s plan to offer below
  market prices for its electricity to attract more business to Plant 42. 
- the city’s efforts to land a passenger air carrier to Palmdale’s Air Terminal.  With two more years remaining
  on the contract for LAWA to operate the air terminal, Ledford says the City wants to take it over at that time.
Ledford said that AV residents buy 680k tickets per year to fly out of other airports.  Ledford prefers discount airlines such as JetBlue and Southwest Airlines as a good fit for the region.  LAWA’s lease of the Palmdale air terminal from the Air Force runs out in March 2011.  At that time, or sooner if LAWA will step out, the City of Palmdale wants to lease the 5,000 sq ft air terminal and have complete control over the air terminal’s future.

Nov 13- Disney/ABC studios is planning to build a new production studio on 56 acres of the 890 they own in the Santa Clarita Valley, east of the AV Fwy 14 and north of Placerita Canyon Rd.  Studio space in the Los Angeles area has a very lean vacancy rate- hovering around the 1% level.  The studio will have 195 acres of outdoor filming area along with 639 acres of natural backdrop.  The studio will include six pairs of soundstages, production offices, talent bungalows, a commissary, administration offices, production ships, production storage, and support facilities.  Each soundstage will be 18,000 sq feet. At build out the facility will provide 2,854 full time jobs and have a direct economic impact of $522M per year throughout Los Angeles County.  One major beneficiary of the new studio will be the Antelope Valley, where film and TV shows are shot every year.  Creation of the new studio, just down the Fwy 14, will result in more filming in the High Desert area. Construction of the studio will also be good for California, as it will help keep the production of films and TV shows in California.

Nov 17- The Greater AV Economic Alliance holds a 10 year anniversary celebration at the Hilton Garden hotel in Palmdale, located on the north rim of the AV mall.  GAVEA officials say, that since its inception, it has had a major role in bringing 8,400 jobs and $472.4M per year in new wealth to the AV.  In the early years of GAVEA, one of the first things members did was create and obtain AV specific demographic data. County wide data, which included high cost areas like Los Angeles and Long Beach, skewed the actual cost of housing and living costs in the AV.  With the help of various Chambers, that data was collected and created for the first time.  GAVEA produces annually the Economic Roundtable Report on the AV’s demographics.  GAVEA also releases reports on the AV’s industrial base, space availability, newest businesses, regional lifestyle amenities, as well as a directory of area industries and their products.  The mission of GAVEA is to grow, retain, and attract business, but they do not close deals.  When GAVEA acquires a lead, they hand it over to the cities.  GAVEA is in the process of adding a searchable data base to its web site to help businesses find goods and services among its 12,000 businesses based in the AV.GAVEA web site is:  http://www.AVeconomy.org

Nov 20- Over a decade in the making, from proposed to planning to funding to actual construction, the AV Veterans Home is officially completed and holds opening ceremonies.  Located at the NWC of 30th West & Ave I, the $27M facility will be home to 60 retired veterans.  One thousand well-wishers attended the opening ceremonies.  Veterans from WWII mixed with vets from Vietnam and Desert Storm as well as some youngsters recently returned from Iraq and Afghanistan.  The facility is named after William J. “Pete” Knight who was a veteran of the Korean War and a long time test pilot thereafter, and resided in the AV his entire adult life.  In the AV, Knight served as a state assemblyman and a state Senator.  Knight passed away a few years ago and during his political career was a major factor in raising the awareness for the need of a Vet’s Home in the AV.  The facility will be run by the California Dept of Veterans Affairs.  Officials say that 150k vets live within 50 miles of the AV.

Nov 26- Edison Mission Energy, the power generation arm of Edison International, has applied through Los Angeles County for a permit to build a 150 megawatt solar photovoltaic plant at 240th St East, near Ave S.  A plant of 150 megawatts can produce enough electricity for 50,000 homes.  The 1,100 acre site is currently being farmed by Bolthouse Farms.  Edison says that it is easier to gain environmental approvals if the land has already been “disturbed” by farming, versus being pristine desert land.  The area is isolated and sparsely populated.  The nearby Lake Los Angeles Town Council has met and approves of the project.  The project will consist of 2M solar panels mounted on 4 to 8 foot posts and does not require water for operation.  The solar panels last 25 years and then are recycled.  Approval for permitting is hoped for by late 2010.  The site will be connected to the power grid on Hwy 18, ten miles to the east.  The 3 components needed for such a project are:  county permit to build, a power purchase agreement to sell the electricity produced, and the proper connection lines with the utility.

Dec 1- A group of 15 business people from China visit Palmdale and are taken on a tour by Mayor Jim Ledford.  The group included leaders from the Chinese auto industry from Shenyang, located in the NE portion of the country.  While no specifics were discussed, industries and products discussed were fertilizer, vitamins, and auto manufacturing.  The meeting was mostly relationship building, common in the far east.  Shenyang is the largest city in NE China and is the political, economic, and cultural center of the area.  One of the Chinese companies looking for a US manufacturing site is BYD, which means Build Your Dream.  BYD is a Chinese automaker of all electric cars.  The chairman of BYD, according to Forbes magazine, has a net worth of $5.8B.  Abroad in 2009, the Chinese will invest $50B.  Both the Chinese and Korean’s are interested in the AV due to its proximity to the Los Angeles ports.  In a 2007 survey, the Los Angeles Economic Development Corp said they found 50 foreign owned businesses in the AV with a combined annual payroll of $32M.  Those 50 foreign firms represented 1.1% of all foreign firms located in Los Angeles County.                                  
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Antelope Valley Existing Home Sales 

During the month of October, AV existing home sales fell -17%, but the decline, realtors say, is due to a lack of supply of homes, not the buyers backing off.  As I told you over the past few months, the banks are manipulating supply, as they are not releasing their foreclosures.  Housing inventory in the GAVAR MLS is about 1,100 when normally it floats around in the 2,000 to 2,500 area.  The lean inventory is causing bidding wars on homes, as one couple has made offers on 23 different homes but has been out bid every time.  Banks / lenders are even sending out letters giving defaulting homeowners a 6 mo forbearance period.  Says John Walsh of DataQuick, “It may well be that the banks have concluded that it is not in their best financial interest to flood the market with cheap foreclosures in this economy.”  The average price of a home sold in October in the AV was $135,997.  After the first 10 months of 2009, home sales volume is up 68% vs. the same period in 2008.  A seasonal slowdown in home sales is expected in December as consumers focus on the holidays, but with the housing tax credit extended to April 2010, buying interest is expected to pick up early next year.

The high desert regions of the AV and Victor Valley lead the state in home affordability with 85% of its residents able to buy an entry level home.  An entry level home is priced at $96,190.  The least affordable housing market in California is San Luis Obispo County at 47% and in 2nd place is San Francisco at 49%.  According to a recent study done by Coldwell Banker, Lancaster is the most affordable community for move-up home buyers, with an average home price of $165,205.  A move up home, for purposes of this survey, is defined as 2200 sq feet, 4BR, and 2.5 baths.  The CB survey covered 310 markets in the US.       

Antelope Valley New Home Sales

The data for new home sales listed below, for the years 2002 through 2007, were provided by the Hanley Housing Report.  Going forward, I will begin using a new source for new home sales, The Siracusa Company.

1990-  total of all new homes sold- 4,900 +
1999-  total of all new home sold-    694   (The Siracusa Co.)
2002-  total of all new homes sold- 1,162 (Hanley Housing Report)
2003 - total of all new homes sold- 1,820 (Hanley Housing Report)
2004 - total of all new homes sold- 2,503 (Hanley Housing Report)
2005 - total of all new homes sold- 4,579 (Hanley Housing Report)
2006 - total of all new homes sold- 2,584 (Hanley Housing Report)
2007 - total of all new homes sold- 1,720 (Hanley Housing Report)
2008 - total of all new homes sold-  906   (The Siracusa Co.)
2009 - projected to sell all year  -     756   (Cal Economic Forecast)
2010 - projected to sell all year  -  1,535   (Cal Economic Forecast)
2011- projected to sell all year   -  2,299   (Cal Economic Forecast)
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Antelope Valley Industrial Space

What a difference five years makes.  At that time AV industrial space was at a premium and with growing demand in a strong real estate market, looked to have an endless future.  In 2004 the AV wide vacancy rate for industrial units was a slim 1.59%.  Today the Greater AV Economic Alliance has a new report that shows an overall vacancy rate of 13% in the industrial market.  In Palmdale, which had a building boom before the recession, the vacancy rate is 27.7%.  Lancaster has an industrial vacancy rate of 7.59%.  While the AV offers a lot of vacant industrial space, that space is not available in the larger sizes of 100k to 200k sq ft per unit.  Between 2004 and 2007 1.7M sq ft of industrial space was added to the AV market, an increase of 22.4%.  Between 2007 and 2009 that number dropped 91% to just 156,588 sq feet.  While the east Palmdale and west Lancaster areas have 1,000’s of acres of industrial use land, much of does not have the infrastructure for development. 

The region however still has the same advantages it had 5 years ago:
- skilled and diversified workforce
- affordable housing
- a separate Air Quality Management District
- a lower cost of doing business as compared to other areas of Southern California
- a state enterprise zone covering 61 sq miles of industrial and commercial land that provides numerous tax
  breaks and credits
- and a Foreign Trade Zone that offers manufacturers and importers an opportunity to avoid custom
  duties and govt excise taxes. 

Lancaster and Palmdale’s major successes in bringing new business to the AV are businesses from
within California, not outside California.  California’s image of being a high tax, high cost state, and
its well known budget problems have made it difficult to lure business here from outside the state.       
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AV Aerospace & Defense

Nov 2- It is well known that Northrop Grumman is building the fuselage for the F-35 Joint Strike Fighterat its Palmdale site at Plant 42.  What is not well known though, is that they are also building the F-35 JSF fuselage for the sale to United Kingdom (England).  NG will build 138 fuselages for the English Air Force. Final assembly will be at Lockheed Martin’s Fort Worth, Texas plant before being delivered overseas. Lockheed Martin’s Palmdale plant produces the radome, stealthy edges, and antennas for the F-35. Northrop Grumman expects their work force to grow from 2,700 to 3,500 over the next five years due to the F-35.  The F-35 is a next generation supersonic stealth aircraft that will replace several different fighter jets and attack aircraft, including the A-10’s, F-16’s, the Navy’s F-18, the Marine Corps 8B Harrier jets and England’s Harrier jets.

Nov 21- Northrop Grumman announces they have received a $302.9M contract from the Air Force to
build five more unmanned Global Hawk spy planes.   The planes will be able to carry 3,000 lbs. of surveillance equipment.  The planes will be stationed at Patterson AF Base in Dayton, Ohio.  The Global Hawk has flown over 31,000 hours of missions, with 24,000 of those hours in support of the war on terror.  The contract includes a ground station for each plane plus new additional sensors that will be retrofitted into 2 previous production planes.  The Global Hawk is stationed at four air bases in the US, as well as in unspecified locations in support of operations in the Persian Gulf region. In tests done last May, but just released this month, at the Naval Air Weapons Station China Lake, 5 unmanned aircraft were successfully shot down by laser technology.  The airborne laser was used to acquire, track, target, and shoot down the aircraft.  Developed by Boeing, the system is called MATRIX, the Mobile Active Targeting Resource for Integrated experiments.  Air Force officials are calling the successful tests a “directed energy breakthrough”.  Air Force officials went on to say, “The tests demonstrated unprecedented, ultra-precise and lethal target acquisition, pointing and tracking at long ranges using relatively low laser power.”  All of the above testing was done from the ground and Boeing now says that all ground testing has been successfully completed.  Sometime in the next few months, the same laser technology will be used from a 747 to be tested against a ballistic missile.  The 747 carriers a high-energy chemical laser on a rotating turret in the nose of the plane.  In previous tests, the laser has been successful in bringing down missiles by targeting the missile’s pressurized fuel tank, causing it to rupture and explode, thus using the missile’s own fuel to bring it down.  All testing  thus far indicates that the laser system is lethal.                                                                 
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Antelope Valley Land Market
 "Supply and demand, in the end, determines the value of all things." 
     - Adam Smith, "Wealth of Nations" 18th century Scottish economist

 Supply closed out November at 1,821, a rise of 40 listings or 2.2% versus last month (October). Supply firmly remains in a trading range of 1,750 to 1,800 +, a trend that has been ongoing for months.  When I look at the supply trend, in relation to what is happening on the “price” trend, it looks to me that the next big move down in supply will be the last major leg down.  More and more it does look like that level will be around the 1,500 area. My supply target of 1,500 represents a 55% decline in supply from the supply top of 3,308 in October of 2007.  In Oct of 2007 we had 133 land sales versus the 30 or so per month we are getting now, so demand was 4 ½ times stronger in 2007 vs. today.  A 50% retracement of supply was my minimum expectation.  That is only 2 years ago, but it seems like 10.  In hindsight, 2006 was a year of distribution, investors last good opportunity  to unload  positions at or near the price highs.  I see early signs that we are on the cusp of the capitulation stage of the market, as more and more sellers are pricing to my recommendation to just get it sold.  The capitulation phase of the market usually comes at the point of maximum pessimism, a point in time where the market negativity is so thick you can cut it with a knife.  While this market does have more than its fair share of negativity, we are probably not yet at the “point of maximum pessimism”.  I feel this will occur next year, as more and more sellers elect to sell out at whatever price it takes.
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Supply numbers in perspective:
Supply change vs. last month:      +2.2%            
Supply change, year to date:       - 13.2%     
Supply in Nov 09 vs. Nov 08:     - 16.39%
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Supply at end  Nov  2009 - 1,781
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Supply at the end of 2008:  2,100
Supply at the end of 2007:  3,134
Supply at the end of 2006:  3,263 (market peak in prices)     
Supply at the end of 2005:  2,264 (market peak in volume)       
Supply at the end of 2004:  1,902
Supply at the end of 2003:  1,607
Supply at the end of 2002:  1,770
Supply at the end of 2001:  1,665
Supply at the end of 2000:  1,800
Supply  in  May  of  1989:    587  (market peak in price)
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Demand- Nov demand (34) was down slightly, 3 sales, and maintains the current Bear market trend of weak land sales.  Month over month, land sales were down 8.1%.  It was the 3rd month in a row of 30 + land sales per month.  At 30 + sales per month we are getting enough buying interest to sell a property if it is priced at today’s market.  Today’s market prices represent about a 50% discount from the price highs of 2006; not the listed prices, but the prices actually realized.  As of right now, it looks like next year, at some point, the market will be entering the capitulation phase of the cycle.  If so, it will become easier to find good solid values.  Keep your “powder dry” so you can take advantage of the opportunities that are coming. 

One prerequisite for any type of recovery in the land market is an improving housing market.  For the last two years I have been saying that we will have two more years of a housing market dominated by foreclosure and distress sales.  Now it is two years later and I am still saying “two more years” of distressed home sales.  Why has nothing gotten better over the past two years?  No doubt, rising job losses in 2009 helped to increase foreclosures, but in my view there is another reason as well.

With the government trying to save the housing market with their numerous foreclosure moratoriums, loan modification programs, and now the Treasury Dept lease back program, the only real and permanent solution of letting the market clear out the inventory, is being delayed.  Foreclosed upon owners, in most cases, would be better off to get it over with.  The sooner the foreclosure is over, the sooner that time will repair one’s credit, and the sooner one may reenter the home market at these new lower prices.  Given the time and patience, the market itself can clean up this mess, and when it has done, it’s done.  As the number of distress sales fall, rising prices will get back in vogue, as homes will once again return at least the cost of construction.  Tinkering with any market to achieve some desired social goal will not work.  All the laws and regulations in the world cannot stop a market from doing what it needs to do. Delay it, yes, but stop it, no.  First, elected officials tried to increase home ownership by relaxing mortgage borrowing standards.  These are the geniuses that created “stated income loans” and “no doc loans” which lit the fuse on the mortgage crisis.  These are the two main items that allowed the unqualified to borrow to buy a home.  When the whole mortgage market blew up, these same politicians came back offering artificial solutions to a problem only the market can solve in any permanent way.  These programs to save homes are costing tax payers millions of dollars, are giving most foreclosure victims  false hope, and are delaying the inevitable, dragging out the crisis.  When all is said and done, a small percentage will have had their homes saved, but the price for that will be years of delay in the housing market returning to health.  So, I say it again, two more years.      
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Median Listed Land Prices
Oct  08 median price-   $50,000
Oct  09 median price-   $49,000
Median listed land prices, year over year: - 2% 
Average Days on the Market-  377

Demand numbers in perspective:   
Land sales yr / date 2009-------303
Land sales in all of 2009--------373 (projected)                                                                             
Land sales in all of 2008------- 475
Land sales in all of 2007------ 1,637              
Land sales in all of 2006------ 2,648 
Land sales in all of 2005------ 3,376
Land sales in all of 2004------ 2,372   
Land sales in all of 2003------ 1,240
Land sales in all of 2002-------  679
Land sales in all of 2001-------  407
Land sales in all of 2000-------  307
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As you can see from the average monthly sales below, on a projected basis, we are back to 2000-2001 sales numbers, which were at the tail end of the last Bear market, and 2 years before the 2002-2006 Bull market began.                      
Average land sales (in 2009) per month-  30
Average land sales (in 2008) per month-  40
Average land sales (in 2007) per month- 129
Average land sales (in 2006) per month- 221                                             
Average land sales (in 2005) per month- 281
Average land sales (in 2004) per month- 198
Average land sales (in 2003) per month- 103
Average land sales (in 2002) per month-  56 
Average land sales (in 2001) per month-  34
Average land sales (in 2000) per month-  26


- Frank Donato, Fourth Quarter 2009

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