Several California distributors and reps say there's gold in the hills of the Inland Empire, the fastest-growing market in the Golden State.
Driven away from coastal communities near Los Angeles and in Orange County by insanely high home prices, many Golden State residents are flocking to a region approximately 80 miles east of Los Angeles known as the “Inland Empire.” This exodus to Riverside and San Bernardino counties has created one of the hottest construction climates in the United States over the past few years.
Inland Empire communities such as Temecula, Hemet, Indio and Victorville have grown rapidly over the past two decades because homes and land are comparatively less expensive in those areas than in other parts of Southern California. The Inland Empire's population is large and still growing — roughly 4 million people live in Riverside and San Bernardino counties.
As a point of comparison, fewer people live in Oregon. With an average annual population gain of nearly 57,000 new residents each year over the past four years, more people are moving into Riverside County than into any other county in the United States, according to a survey released in April by the U.S. Census Bureau.
“This marketplace was the gold mine of Southern California's residential explosion in the 1970s and 1980s,” says John DeFazio, principal of Electric Sales Unlimited, a manufacturers' rep based in Santa Fe Springs, Calif. “It has developed like crazy, and it has been a humongous residential market in the past. What came with that was more light commercial to support the residential. Then companies began to move out there. It became a land of tilt-up buildings everywhere for distribution, small companies and manufacturing.
“The sprawl began to spill over into Temecula and down into what we call the high-desert area, which would be Victorville and Barstow and a lot of towns people never heard of unless they drove by them on their way to Las Vegas,” DeFazio says.
This booming construction market is attractive to electrical distributors. Herm Isenstein, president, DISC Corp., Orange, Conn., forecasts that electrical distributors in the Riverside/San Bernardino region will sell about $820 million in electrical products this year.
Although it has cooled in recent months, residential building has fueled much of the area's growth over the past five years. In terms of 2005 building permits, the National Association of Home Builders (NAHB), Washington, D.C., ranks the Riverside-San Bernardino-Ontario metropolitan statistical area (MSA) as the fifth largest single-family housing market in the nation, with 45,790 single-family home building permits issued last year. This year, the region's 16,340 total building permits year-to-date through April are up 2 percent from April 2005. Of these, the 14,000 single-family building permits year-to-date through April show zero percent growth from April 2005.
“In the Inland Empire, there has been incredible residential growth and expansion driven primarily by the overpriced real estate market or ‘priced-out’ real estate market for first- and second-time home buyers in the L.A./Orange County area,” says Kelly Boyd, president, ElectroRep Inc., an independent manufacturers' rep based in Sausalito, Calif. “Those people were cashing out and looking for more land, more value in their homes and affordability.”
Boyd says residential construction in the Inland Empire has started to show some signs of slowing, in part because of higher interest rates and affordability concerns in some of its communities near Los Angeles, such as Riverside and Corona. He says a first-time homebuyer now has to pay at least $600,000 to $700,000 for a house in a close-in area such as Riverside or Corona, instead of $300,000 not too long ago. Homes are on the market an average of 30 percent to 35 percent longer than this time last year, he says.
The Inland Empire is still considered home to affordable housing — at least by California standards. The median price of new homes in Riverside/San Bernardino counties jumped to $391,250 in January, up from a median price of $117,740 eight years ago. In the last three years, the median price of a home in Riverside/San Bernardino counties has more than doubled, from $190,680 in January 2003. That compares to $506,000 in March for Los Angeles County and $617,000 in February for Orange County.
United Electric Supply, Chino, Calif., has been doing business in the Inland Empire for almost 40 years. About three years ago, the company moved from City of Industry to Chino. “We needed more area and a bigger warehouse,” said Steve Benshoof, the company's vice president. “The majority of our customers were out this way and a lot of the residential and commercial building was out this way. There are a lot of distribution centers out here so truckers don't have to go all the way into L.A. anymore. They come out here. The distribution centers range in size from 10,000 square feet to a million square feet. Nestlé, Hyundai and other big auto manufacturers have distribution centers here.”
Similarly, other electrical distributors have also moved to the Inland Empire to be closer to the action. Walters Wholesale Electric Co., Signal Hill, Calif., has opened four branches in the Inland Empire in the last eight years. The company has branches in Rancho Cucamonga, Riverside, San Dimas and Victorville, and plans to open additional branches in the Inland Empire so it can have local inventory for its contractors.
Bill Durkee, the company's president, says the Inland Empire has seen a huge transition in the past 20 years. He says there was a time when homebuilders who had purchased huge tracts of ranch land in anticipation of new housing developments teetered on the brink of bankruptcy because land prices dropped so low, and some of them had to sell their holdings.
Prices rebounded in the late-1990s because of the growth of the region as an international distribution center, Durkee says. “What really brought business into the area was the ports,” he says. “We have the largest combined port in the world in Long Beach. A lot of companies have set up warehouses there, and as a result of that, many companies have set up distribution centers in the Inland Empire where they reconfigure shipments to be sent to other areas of the United States.”
ElectroRep's Boyd says the Inland Empire is growing faster than any of its 10 other California markets. “The Inland Empire continues to be our strongest territory out of the 11 markets that we define in California,” he says. “That's because of the commercial construction and infrastructure-supporting industries that have come behind the residential expansion in the last four to five years — institutional business, hospitals, schools, municipal business, wastewater-treatment facilities and water-treatment facilities,” he says. “Even the utility business in that area for the rural utilities is very strong. Then you get into all the service-related businesses that have to support that.”
School construction is also booming. Boyd says one the largest school construction projects on the West Coast is underway in Indio, Calif.
Interestingly, two of the top 10 employers in Riverside County are actually casinos. They are the Pechanga Resort and Casino in Temecula, which ranks No. 4 among Riverside County's largest employers, and the Morongo Casino Resort & Spa, Cabazon, Calif., which ranks No. 10 on Riverside County's list of largest employers. Perini Building Co., Las Vegas, a subsidiary of Perini Corp. in Framingham, Mass., recently completed the Morongo Band of Mission Indians' new Morongo Casino Resort & Spa, located approximately 20 miles west of Palm Springs and 90 miles from Los Angeles.
The $250-million casino was built on 44 acres and features 27 stories of casino, lodging, meeting facilities and retail services. Other casino projects include the $185-million expansion of the Agua Caliente Casino in Rancho Mirage. The project will include a 16-story tower with a restaurant and lounge on the top floor, a 344-guest room resort hotel and an expansion of the casino. The project is scheduled for completion in December 2007.
Although residential and commercial building are strong in the Inland Empire, there are no signs yet of the high-rise condo construction prevalent in other western U.S. cities such as Las Vegas, Phoenix and Los Angeles. DeFazio of Electric Sales Unlimited says this construction will eventually become a factor in the Inland Empire, too.
“There's been a tremendous push for ‘vertical housing’ in southern California,” he says. “It's just a matter of time before it ripples over into the Inland Empire. But it will take some time. They may be a generation behind us. This vertical housing is going to be an issue downstream, particularly in the metropolitan areas we used to call the boondocks.”
Although building permits may be down, electrical distributors and reps in the Inland Empire are still looking for several more good years. ElectroRep's Boyd says the residential market has seen high percentage gains in growth year-over-year for the last four years. “Everyone is predicting residential to be flat but still strong, relative to the past,” he says. As a result, the commercial infrastructure market that lags the residential market by about two years is still expected to be very, very strong in 2007 and 2008. But then after that, it may be flat in 2009 and 2010 because of the residential being flat.”
Inland Empire by the Numbers
2006 sales through electrical distributors
$820 million in sales, according to DISC Corp., Orange, Conn.
The Riverside-San Bernardino-Ontario metropolitan statistical area (MSA) had 16,340 total building permits (single-family and multifamily) year-to-date through April. That's up 2 percent over April 2005.
Major construction projects now underway
The $250-million Morongo Casino Resort & Spa, Cabazon, Calif., was recently completed. Other casino projects include the $185-million expansion of the Agua Caliente Casino in Rancho Mirage, Calif. The project is scheduled for completion in December 2007. The Metropolitan Water District of Southern California is building a multi-phase project to support major residential expansion in the Inland Empire. The project is expected to be complete in late-2008.