Tacos For $5.00

I’m Mike Lin, and I’m a commercial real estate broker based in Southern California.  I help owners of retail properties determine the value of their real estate and help to sell them for top dollar.

Here’s this week’s newsletter.  Enjoy!

Today’s email is brought to you by Jack in the Box in Pomona which I helped a client purchase. We closed escrow two weeks ago for a price of $2.7MM.  This was a challenging transaction in which we (meaning the buyer, seller, and the tenant) all found out during due diligence that there had been a gas station on this site 70 years ago.  We worked through the environmental issues and my client was happy to be able to purchase this property since they had been looking for the right single-tenant property to purchase for several years.

If you are interested to know what current cap rates are for single-tenant properties in Southern California, I have a report of on-market and recently sold single-tenant properties.  Just reply to this email, and I’d be happy to send it to you.

New transit hub coming to Rancho Cucamonga

The City of Rancho Cucamonga recently unveiled the design for a new transit station that will be built adjacent to the existing Metrolink Station on Azusa Court just west of Milliken Avenue. This Station will be the entry point for new projects that are in the planning and design stages such as:

• High-speed rail train that will travel from Victorville to Las Vegas
• West Valley Connector made up of special Omnitrans buses; and
• The new underground tunnel system for Elon Musk’s Boring Company that will transport riders to and from the Ontario Airport.

There will be a residential component to the project, as well. An 867-unit rental home project called “Homecoming at the Resort” is being developed by the Lewis Companies, and will be built on the old Empire Lakes Golf Course. This residential project has broken ground already.

No date has been set for completion, or even the groundbreaking for the transit hub.  But this is a very exciting project for the Inland Empire and I’m looking forward to it being completed in the coming years.

Update on the Residential Real Estate market

For the first time since the pandemic began, rents are on the rise in every major US city.
According to a Bloomberg report, multifamily buildings across 30 major American cities saw an average rent increase of $25 last month, bringing the national average rent to $1,539 which is 10.3% higher than a year ago.

The increases in rents ranged widely.  The top 3 rent increases were in Phoenix, where apartment rents were up 22% more than last year. Tampa was at 20%, and Las Vegas at 19%. Los Angeles was in the middle of the pack at 7%.
New York and San Francisco, the two most expensive cities in the country to rent in, had the lowest rent gains, of 2.8 percent and 1.4%, respectively. Despite rents rising across the board for apartments, the Wall Street Journal reports that rents for single-family homes have increased even faster, increasing 13% since January. And in June, rents were up 7.5% versus prior year, which is the largest annual increase recorded in at least 15 years.

Data from CoreLogic shows that after 6 months of record highs, prices and sales of houses in Southern California leveled off from July to August. The median price of a home in SoCal was $680,000 in August, which was down $1,000 from July. In addition, there was a decrease in the number of homes sold by 2.2%. CoreLogic reports that agents are seeing fewer bidding wars for homes, and the supply of homes is gradually increasing, which is leading to prices leveling off.

Zillow reports that this trend in Southern California is also reflective of activity around the country. 43 of the nation’s 50 largest metro areas saw home appreciation slow down in August versus July.

Many experts think that we are in the housing bubble. But institutional investors think there’s still more gains ahead, with firms like Blackstone and KKR injecting billions into the residential market.

The Evergrande collapse in China

Chinese real estate developer Evergrande made big news earlier this week. It is China’s second largest property developer by sales, and is the number one developer in terms of how much debt it has, which is over $300 billion dollars.

This Thursday, Evergrande is due to make an interest payment of $84 billion dollars on bonds that it has sold, but it has warned its investors that it will not to be able to make this payment. The company has been struggling for years, but has continued to stay afloat by selling off some of its properties at significant discounts, and borrowing money from various sources, including its own employees. It recently stopped paying those employees back.

As a result, its stock has lost over 90% of its value, and there are concerns that Evergrande, which owes money to almost 300 banks and financial institutions, may default on all of its loans.

So how will this affect the international markets, and particularly the US markets?  Some are comparing it to the Lehman Brothers collapse during the global recession of 2008. We also don’t know if the Chinese government will intervene and bail out the company.

Fortunately, most economists believe that the damage will largely stay within China, since Evergrande is a real estate company and not a financial institution. The S&P dropped 1.7% on Monday after the news, but did make back a lot of the losses by Tuesday. But in the past year and a half, we’ve grown accustomed to market volatility, especially in response to news coming out of China.

Retail foot traffic update and 2021 holiday shopping forecast

I know it’s only September, but retailers are gearing up for the Christmas holiday, and maybe you should, too.

Due to supply chain issues all over the globe as a result of COVID, many retailers will be experiencing product shortages. I’ve heard from more than one of my clients who works in transportation that if you’re going to order some toys or other products that need to be shipped from Asia, then you might want to order them now to make sure they arrive in time for the holidays.

Fortunately, foot traffic is returning to stores. Placer.ai, which is a service that tracks foot traffic to retail locations by using cell phone location data, shows that visitors to retail chains in San Bernardino and Riverside Counties have surpassed 2019’s foot traffic level, and in LA County, we’re at 99%.

How will this holiday season shape up in terms of retail sales?  Consulting firm Deloitte predicts that retail sales will increase 7-9% from last year.  Similarly, another study by KPMG also thinks that retail sales will increase by 7%.
And US retail executives expect that e-commerce sales will grow by 35% over last year.  More than half of the shoppers surveyed expected to spend $300-500 more than last year on gifts.

So there definitely seems to be optimism in the air for this holiday season.  I’ll be sure to update you in a few months to see if these predictions come true.

Well, that’s all I’ve got for this week.  I hope you learned something today! Thanks for reading.