Do we think California rebounds?
Cons: Heard today that all of the tech jobs gained since the pandemic in california have now all been lost. A lot of people/companies have left California for Phoenix/Vegas, Texas, TN, & Florida. Deficit is enormous. Home prices near or at ATH. SF and LA are worse than they were pre pandemic. Theft seems to be increasing and a lot of businesses going under. Prob more taxes on the way to make up for deficit. Highest UE of any state
Pros: Best weather in the US if not world. Prop 47 being challenged soon, homelessness can be dealt with after Court ruling. Seems like if you could deal with homelessness, business regulation, and housing, the state could rebound and rebound quickly.
Do you think California reverses and rebounds as a state or continues to double down on crazy policies and we start to see an influx of migration away from California again?
del
Not sure how much time you’ve spent in LA, but of all major cities CHI/ATL/MIA/NYC/London/Paris/Berlin/Sydney/Florence it is most certainly the best. Dry heat is levels better than the moist East Coast imo.
How you sneaking in Florence on that list? wtf
Whack list of major cities
Bro are you Italian? Florence but not Rome is hilarious. Also no East Asian cities
I genuinely don’t know where in the world has better weather. Everywhere else internationally I’d think of has the same exact climate.
I suppose this comes down to preference at some level, but Mediterranean climates are about as peak as it gets.
The Canary Islands (Spain) has better weather. Similar to the weather in San Diego in early summer but year round
No, tropical is better. Speaking from experience as I’ve lived my whole life in coastal southern California and Hawaii. Hawaii beats California by a mile
And by coastal I mean on the water/beach in both California and Hawaii my whole life :)
Missed opportunity for an over/under here, I’ll take the under though
I'm hesitantly optimistic. As you mentioned, California has something that can not be replicated in it's weather and general climate / landscape. I think that's a real safety net that stops it from ever bleeding too badly (never going to see it become the next Detroit 15 years ago). It's geographic location is also an advantage (borders Mexico where a bunch of trade is coming from + about as close as you can get to Asia).
I was one of the people that left CA for Texas and I often find myself regretting it albeit my quality of life is much better in Texas. I'm adjusted to Texas now and it's cost of living, etc, but almost daily I find myself wondering if I should just suck it up and move back to California. Similarly, I know many people in the same position that feel the same way. All said, I don't have a family yet and I can imagine how difficult it would be to raise one in California compared to Texas and I think that's a real issue as high-paying jobs become more remote and people have more flexibility to choose location.
Let's hope the pendulum in CA has finally gone tou far and can start to swing back and give us a taste of the glory days again. What an amazing place it would be to live if it figured out some of these ridiculous, often political issues and curb cost of living a bit.
I'm actually the opposite here, I moved out of CA and couldn't be happier. I do have a family though and raising kids in CA is hell.
Where did you move?
Why? Some of the best public schools in the country.
The thing that can't be replicated is how it is the center of one of the most important industries and is the center of the most visible industry in the world. The lock-in effect and self-organized criticality are real phenomena.
Other places may bite around the edges, but there would need to be a real systemic change in order to make a real difference. Kind of like how Boston was the first tech center in America before Silicon Valley and that transition was caused by a variety of systemic changes (ie - Stanford's use of its massive land holdings).
Moved to Dallas two years ago from OC (halfway between LA and San Diego). And just moved back for a PE Asso role in LA.
Found myself with more purchasing power in Dallas which was nice. Dallas is more of a foodie town than I would've expected so definitely balled out on some nice dinners. I also didn't hate living there and would've been happy there for another ~5ish years (early/mid 20's and single). However, I struggled to find things to do other than eat and drink which eventually gets old, and I found meeting new people to be somewhat difficult, as Dallas is somewhat socially clique-y IMO.
Most importantly, I found myself traveling back to CA to see family, or traveling to vacation with CA friends, nearly every 3 day weekend. Combine that with the above + Dallas weather being pretty nuts, and the move back to CA does make a lot of sense for me.
I'm enjoying being able to actually sit outside right now lol - 76 and sunny as opposed to mid-90s in Dallas rn.
Agree with that, no detroit. I've been interviewing for roles in So cal and a couple in Texas. The Texas ones pay more, which is surprising. Outside of weather, what do you prefer in CA over Texas?
I've traveled recently to cities in Florida, Texas, and Phoenix and my conclusion is that it's extremely difficult to beat California's offerings ( particularly so cal) especially if you got a good housing deal in CA.
That's odd to hear. In my experience, LA roles pay quite 20 - 50%+ more than TX.
In terms of what I prefer in CA over TX: Obviously the weather, it's much more beautiful (Texas is mostly brown with limited natural beauty near the major cities), the people are more diverse both in actual race but also upbringings, countries / places they come from, things they like to do, etc., California has better concert venues and offerings (something I care a lot about). I find Texas very predictable. I know exactly what I'm going to get when I go out for the night. LA has the ocean and mountains and is a few hour drive from several amazing destinations.
Honestly, TX is a pretty "pleasant" place to live but it gets boring. Not much to do outside go out to eat or raise a family.
As an investment thesis? I have no idea. As a major destination and cultural hub? Without a doubt. Just looking at LA: it's the center of film and music, has a very strong arts culture, the LA Philharmonic is one of the best in the country, great food scene. It will always attract people interested in the LA lifestyle, whether that's surfing, hiking, movies, food, etc.
Sure maybe some people move out, but you'll get equilibrium effects where a population decrease will lower the cost of housing which makes it easier to move in, etc.
Pros: If they could get their arms around finding solutions for the regulatory red tape, cost of doing business, homelessness, insurance, etc. issues there’s some upside.
Cons: They’ve never gotten their arms around the regulatory red tape, costs of doing business, homelessness, insurance, etc. issues.
So it has been the case that they havent found solutions. It's really a question if the pendulum will swing back. If prop 47 gets voted down & with supreme court ruling, seems a higher chance than californians have been accustomed to, to turning things around. Additionally, i do wonder if Gavin Newsom will try to fix some of these issues if he's considering a run in 2028 for president. I dont see taxes going lower, housing getting much cheaper ( in so cal) or making CA more business friendly in the short term, but reducing crime and homelessness would help considerably.
I personally think there could be more pain for SF housing/multi. Continuation of tech layoffs, companies reducing space and not renewing office leases, and a realization that there's been a huge misallocation of capital towards AI Companies.
For so cal seems like a lot of people are fleeing areas of LA for OC. Seen rents decline in LA and with some crazy rulings in Santa monica, tougher to people to justify investing in subinstitutional multi in LA. However, home prices still freakishly strong in LA. Going to take a huge stock market crash with continue UE to see cracks in so cal imo. Inventory is still so suppressed.
Every place has problems. California's is that they can't build housing. That's a "better" problem to have that the kinds of irreversible weather issues in Florida, or what I suspect will be severe water shortages in the Southwest/Texas.
California's "crazy policies" aren't any crazier than anywhere else. What you meant to say was "policies I personally don't like." No one is leaving California because of the politics, they're leaving because of housing costs.
What area do you like investing wise if Texas/Fl/Vegas/Phx is out? Ohio/Carolinas?v Wouldn't be surprised to see Floridians migrate to Georgia/Carolinas. Although it looks like Florida home prices are about to tank in certain areas so may open up the path to more migration.
My opinion is that anyone who is restricting themselves to a certain area because "that's where people are moving" is going to do poorly. That isn't really an investment thesis - everyone else is doing the same thing. Maybe you have a captive insurer, so you can operate in Florida more cheaply. That's an edge.
Just because I think Florida is going to get vastly more expensive doesn't mean I wouldn't buy there (though... I wouldn't, in this case). You just need an actual investment thesis, a real business plan, and not "this is where everyone else is going".
I do agree that California is an absolutely beautiful place and have always enjoyed my time there when visiting. I’d love to live there myself if it was more affordable. However I don’t see their cost of housing improving due to systemic problems unique to California, but rather only getting worse which I think is an unfortunate reality.
California’s problems are that their regulatory hurdles and NIMBYism vehemently restrict housing supply. Look at how many new building permits SF and LA metro issues per month vs DFW. DFW regularly is issuing ~5-10x as many building permits per month for new housing as SF, and even outpaces LA metro even though LA metro has a population of 3x the size of DFW. LA and SF will need to ramp up their housing building permit issuances a lot for supply to catch up with demand
There will need to be systemic changes in California’s regulations which imo, would require de-regulating their building and city planning substantially to open the housing market to working efficiently again. Also prop 13 is one of the worst regressive tax policies ever passed which heavily favors older homeowners. Prop 13 really disincentivizes anyone from ever really selling their home tbh, as it limits property tax assessments to 1% annually so homeowners with homes valued at $3m+ who bought 30 years ago are probably paying property taxes on a basis of less than $300k in appraised value. They definitely would have get rid of prop 13 for the market to work efficiently again, but again homeowners will vote against getting rid of it so this will be challenging.
SF
https://fred.stlouisfed.org/series/SANF806BPPRIV
DFW
https://fred.stlouisfed.org/series/DALL148BP1FH
LA
https://fred.stlouisfed.org/series/LOSA106BPPRIV
DFW has way more land available to be developed as well. LA should really fix DTLA and let the density fly down there. Give people a place to live that's exciting and safe where they don't need a car. Imagine if LA has a sick downtown where people actually wanted to live and was a center of the city's culture.
With all due respect, I hear that argument a lot, but is that really true? There’s tons of undeveloped green space around LA and SF, except it’s all been declared state / national parks / forests prohibiting development. Houston is a coastal city landlocked by the gulf but they don’t have the same affordability issues as California’s coastal cities.
While I understand the desire to preserve truly beautiful places like yosemite or sequoia, I think there’s been too much push to making all green spaces in California wildlife preserve areas. I’ve been to many national parks in California, while many are beautiful, some not so much- pinnacles imo is nothing special and just a big desert designated as a wildlife preserve just to prohibit develop and protect a couple local species of birds and lizards. It’s this type of regulation which prohibits new supply coming to market and making housing more affordable. Unfortunately you can’t have your cake and eat it too.
Roughly 20% of the entire state of California is designated for wildlife preservation.
https://www.cliqproducts.com/blogs/news/states-with-the-most-parks-and-…
No offense, it’s obvious you’re in consulting with this response…
you’re taking a shot at Prop 13…? What in the world 😂
second, care to chime in on the regulatory environment from the state level that touches on all jurisdictions you’re speaking to…? Is it CEQA…? Do you know what a SCEA is…? Do you know what SB330 is…? Do you know what measure ULA is…? Do you understand the cost of construction? Do you think the Austin’s and Dallas of the world with big price corrections and rent reductions is a “better” market than the SoCal markets? I certain don’t, especially when Austin will be untouchable from a development perspective for an entire generation.
…you are pro-Prop 13?
.
Compairing 2024 LA, to 2024 insert town on the rise such as Dallas isn't accurate. They are not in the same stage of their growth trajectory. LA is a far more mature place that has gone through a massive population boom over the past several decades. Many of these other cities are lagging behind LA by several decades. Much of LA has already been infilled and there is very limited space. Its just really bad to comp these two places.
One thing not mentioned.
For a long time and still today, California is the state that attracts many immigrants due to the multicultural culture (gateway state as opposed to just a gateway city). They feel comfortable and safe.
I’d say, over the past 50 years, the rest of America has become more and more multicultural. More recently, social media allows immigrants to follow life of friends in other places more easily, and venture out to lesser known cities to live.
I live in California and there’s no where I’d rather live than here or my home state Hawaii.
California's homeless issue is probably much more impactful to it's future and people's daily lives than even imagined. Look at LA where the one place they could really add housing density and reduce need for cars is downtown LA, where there is also a ton of multifamily product struggling to be rented. The reason? Homelessness is out of control and scares people. If LA put their foot down on controlling the homeless issue downtown, growth there could explode and create a real place where there is dense housing, a center of a city where people don't need more cars to clog the roadways even further. Not only that, but it could spread out the desirable areas of LA. Now as it sits, most of the desirable pockets are all concentrated in west LA. If downtown LA became a place to be both during the week and weekends, the population of LA could spread out further east as well.
I think you really don't understand anything about homelessness
Even if they can clean up DTLA (which we know won't happen), I just don't see it. People don't live in LA b/c they want the "city" experience, they want to be by the beach living that life.
I think there are a lot more people in LA that want city life than you realize. I lived in LA for 8 years and most people that live there rarely go to the beach. If that were the case, why do so many people choose to live in West Hollywood or the hills?
Would have to dismantle a lot of regulation like others have mentioned. Not sure how viable that is, but like others said, many are willing to pay the California premium. It's worth it to a large degree IMO. I'd definitely pay ~30% - 40% more to live there, it's the other stuff I'm not so sure about.
This thread and the California bashing stuff is always super entertaining.
what’s considered a rebound? Is Austin in rebound mode since rents are becoming more affordable or is that still booming? By definition, it’s fucking booming with supply, but rents are subsiding like crazy and destroying promote/value. Conversely, most of CA hasn’t been hit in their major cities nearly as hard and you’re seeing crazy house pricing increases lately = I.e.= mid/north county San Diego is as strong of a single family housing market as anywhere in this country, and you add San Jose plus OC and you have had as large of single fam house pricing increases as anywhere (data came out today that Seattle and those three are 10-11% higher YoY (John Burns Consulting released that specifically today). It’s incredibly expensive, but the people who’ve lived there have made SO much money on their homes it’s wild, and it’s super challenging to find something “affordable.”
all of that to say: there’s no other state that contains basically all demographics of the US in one state like CA. You have boom towns like San Diego, OC and IE who shared similarities to the Phoenix/Vegas with more affordable housing and develop ability. Then you have SF and LA who are extremely liberal with their policy and have made building so tough that all current owners continue to make an absolute killing; add on the fact that LA didn’t “boom” as much recently with new supply, but that actually has benefitted owners. The mansion tax is something that will continue to hinder LA tho, it has the perfect storm of economic drivers and weather to keep the demand endless forever, but politics will continue to get in its way….
sf on the other hand is beyond this point and is rounding back into form and hoping to become even more business and development friendly than lately, which signals investment over the next cycle.
blah blah blah, hard to answer succinctly so sorry for the ramble
Of course, City/state doomloop threads always bring people out to comment. I'm curious as to why you think SF is rounding back into form and has bottomed? What's going on in SF that makes you think it will rebound over the next cycle? The new law that lets them approve more quickly? Don't have access to any of the data providers but am curious if positive/flat/or negative rent growth has been forecasted for multi there. Wondering if we see more and more tech layoffs that haven't been accounted for.
Anecdotally, I worked for a firm with a few buildings there that they bought back in 2013, I'm pretty sure they're still underwater on those deals as the hits from the 2016 supply glut, covid exits, and general malaise of the city mean that the property can't even service its debt (and this isn't from variable rate loans, they just can't cover a 4.25% amortizing loan).
First of all, culturally it’s in a better place today than a few years ago. Too much froth, too many tech bros making it insufferable. Second, AI actually does have momentum like the old Silicon Valley days and its VC scene/money still dramatically outweighs any city globally. Third: Life science is booming in terms of supply there as well, so if the well balanced economy keeps chugging forward I think SF is primed for incredibly growth over the next cycle and those buildings will be well positioned to capture the bay areas huge rent numbers for new space - just like I think plenty of these cities will have eventual growth long term. There’s too much money supply floating around for it to not continue to settle into the pockets of real estate, SF isn’t going anywhere….
I’d be more worried about LA politically and real estate wise than SF tbh…
Couldn't agree more- San Francisco looks terrible from a national media perspective because of its status as a liberal punching bag. Anyone who lives in this city knows the neighborhoods are doing enormously well. Rents are up and and continuing to climb, every summer thousands of fresh college grads pour in for new roles at growing companies and AI is re-energizing the tech bros. Anecdotally, I know not one, not two but three very successful founders who have moved back to the bay after flirting with Texas. We're here to stay baby
Why LA? I know Santa Monica has made it extremely difficult to invest in recently but what regulations are in place in LA that wouldn't affect SF? Additionally, curious on your thoughts if AI is overhyped and it's a complete misallocation of capital. Does SF get crushed in that scenario? I do agree though that SF definitely has a point where it's too cheap to not step in and buy.
(I'm still waiting for AI to be able to build an excel financial model, would think it would have been a cakewalk for AI at this point)
If anyone on this board has any multifamily in Santa Monica to sell I will buy it - not joking either… DM me
What cap rate are you buying, POST*-tax adjusted?
*edit because I am a noob and typed the wrong thing from what I was actually thinking.
California rebound? Outside of the urban core, which is getting hit nationally, California values are holding up exceptionally well. Rents in our portfolio are extremely strong. If you’re referring to domestic population growth rebound, you’ll need values to decline because the outbound migration is purely affordability reasons except for the ultra wealthy that are just moving on paper. Most that say it’s for political reasons are lying, they just can’t afford CA anymore.
My SF house has only appreciated an average of 3.5% per year since 2015, so about 35%. Basically around the same value as pre-pandemic.
I’d say prices are pretty moderate. Not cheap but reasonable.
A rebound will happen, how fast it will happen is the question.
I've lived in California my whole life, 31 years to be exact. My family's here, went to school here, lived in the Los Angeles area and SF Bay Area a couple years at a time back and forth. This State is just screwed on some many levels. As the OP mentioned affordability of housing, crime, homelessness and business regulation are just at the WORST. Much of the crime and homelessness has just spread to some of the nicer cities and suburbs that you mostly didn't think would happen. From stores, malls and gas stations being robbed and ransacked to cars being broken into, to muggings or violence on public transit. You're definitely having to keep your guard up and watch your back. It's not unusual to walk into a grocery store in LA now to see security armed at the front door ready to charge at any thief.
Homelessness is flippin' out of control. For a while the homeless was kind of like musical chairs. The city authorities in LA would force homeless out of encampments built under the freeway and then they'd end up setting up camp on sidewalks in other parts of the city and then would later get kicked out again months later. The city has offered to many of them on multiple occasions but some are so heavily drugged up that they're refusing every single time and continue to be a problem. It's insane at this point. I haven't been to San Francisco recently but I know they're attempting to the same action, especially in drug-ridden neighborhoods like the tenderloin.
I sincerely hope the citizens of this state are pushing for a change. In the last few months, I can name a few examples of how crazy this state has been:
- An older woman in SF was pushed by a homeless man in front of an oncoming BART train, she hit her head but later died at the hospital that evening
- California spent $24 billion on the homeless crisis, but admits to not knowing how it was spent
- Mayor of Oakland and the police department were raided by the FBI
- A USC student was originally charged with murder for acting in self-defense after a homeless man with a gun broken into his vehicle
- Criminals being bold enough to break into homes in the middle of the day or night even when people are home
Negative views on CA are overblown and typically made by people that aren't from that state or haven't lived here long.
The simplest way to determine if the state is in decline is to look at home prices. They are up. RE is an efficient mkt if the state was in decline housing would be going down or at a minimum plateauing.
Most of the knocks on crime and homeless, which yes are true (though lets be honest exist all over), are extremely confined to places people wouldn't live anyway. Certainly not people 30+ that are married with families.
This 100%. The hate California gets is mostly from people coping that they don't live there. NYC gets the same treatment. Hearing people from Atlanta mention the crime in LA while ignoring the rampant amount of crime in their own city always cracks me up.
California is fine
Somewhat promising news for California, Governor Gavin Newsom just issued an executive order to direct state agencies on how to remove homeless encampments, a month after the Supreme Court ruling allowing cities to enforce bans on sleeping outside in public spaces.
As an Angeleno for the past 11 years, we need to start seeing some change as the homeless situation has gotten so out of hand. This gives me hope that we can and will do better.
This is huge. It will lay the groundwork for many cities to implement this vs. them being scared to do so. The problem is where to put them. Until they can create mass area's to centralize services or have mental asylums, it's just going to move people around. Also having to store their stuff for 60 days is ridiculous and is going to open them up to a lot of lawsuits.
Hearing a rumor Wood Partners is sun-downing their west coast operations, including California. Not “everyone is fired today” but more “close out your current responsibilities and deals but there won’t be any more.”
Wondering if anyone here can confirm.
The rumor is true. Not a great sign for CA. Less supply- would think we see increased rent growth and home prices as well as a continuation of migration to the sunbelt.
Too many NIMBYs and local government restrictions. CA would ton it AND fix the housing crisis if they only embraced development
Woods posted it on their linkedin page. They are out of CA and oregon as well as Washington.
Appreciate it. I’ve pretty much checked out of LinkedIn these days. More obnoxious than Facebook even IMO
Makes sense. Development doesn’t pencil in those states. Cut overhead until it does.
Good news for investments in existing properties.
After talking with frustrated locals, sounds like the political pendulum is generally swinging back towards something more conservative (obviously still very liberal on a relative basis)
Not in LA, we going BACKWARDS QUICKLY. Too young of a city compared to SF and NYC, just starting to entertain the incredibly overbearing “rent control / mansion tax” bullshit.
SF and SD…? All aboard
Curious who threw monkey shit at this post… care to comment…? 😂
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