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by Hank Stokes
Increasing numbers of residents and visitors are building homes, creating jobs, and positioning Coachella Valley — and Riverside County — as one of the fastest-growing regions in the United States.
Oliver Cromwell famously told a portraitist to “paint me as I am, warts and all.” It’s a maxim that guides the annual Palm Springs Life Progress Issue. Each October, we examine the economic state of the Coachella Valley. Until now, frankly, the new century has brought mixed tidings. While the post-millennium national and regional business downturn didn’t flatten our valley economy, it certainly caused us problems. In other words, there were plenty of “warts” to discuss. Some of those problems remain, of course. However, in this report on valley progress, nearly all the signs are positive.
PSL once again employs a time-tested methodology to construct our survey. We focus on independently compiled municipal data for the latest calendar year in five key categories of economic and demographic performance: permanent population, hotel room sales, retail sales, assessed property values, and building permit valuations. We present these 2004 results in each category and for each of the valley’s nine cities and bring in experts to help analyze their
significance.
By the way, you’ll find the relevant city-specific data in the 10-year bar charts in each city’s special advertising section in this issue. Our purpose is to present the latest figures in their recent historical context and thereby enable you to discern trends at a glance. So, here’s your opportunity to study the numbers and decide for yourself how our desert economy is doing.
Population on the Rise
If there’s one commodity the valley has plenty of, it’s people. In 2004, six of our nine cities ranked among the 10 fastest growing in Riverside County, which in turn was the fastest growing “big” county in the state — and the second fastest in the nation, according to the U.S. Census Bureau. Locally, the eastern valley led the way.
La Quinta and Coachella populations each rose by more than 9 percent, and Indio by nearly 10 percent. Those are exceptional one-year increases. Desert Hot Springs, a West Valley city at last coming alive, grew 7.7 percent.
Elsewhere, the pace was more measured. True, during 2004 Indian Wells added almost 6 percent and Palm Desert more than 8 percent. But the former is so tiny that even a few new residents can have a disproportionate percentage impact, and the latter’s growth was mostly due to midyear annexations from the county. The pecking order of valley cities remains unchanged: At 66,118 residents, Indio is by far the largest and continues to widen its lead over second-place Cathedral City (50,632). Then come Palm Desert (49,280) and an increasingly distant Palm Springs (45,731).
That last is puzzling. Palm Springs was once the valley’s biggest city, yet for the past two decades it has consistently trailed the pack in annual growth. Many thought its recent residential construction boom presaged a significant jump in permanent population — but with a 2004 increase of only 1.54 percent, that is obviously not so. Why? Some Realtors say that most new home buyers there are singles or childless couples. Besides, they add, an unknown but undoubtedly high proportion of newly built Palm Springs homes are being bought to live in only part of the time rather than year-round.
Bob Marra — publisher of the venerable Wheeler’s Desert Letter and a leading valley business consultant — tends to share these views, although he doesn’t apply them to Palm Springs in particular. (PSL is especially indebted to Mr. Marra for providing some of the data included in this issue.) He draws a fascinating contrast between population growth here and in western Riverside County. “Both sides of the county are increasing rapidly,” he says, “but over there, many new companies are moving in and hiring people. Therefore, job growth — and well-paying job growth, at that — is powering their population surge, which in turn is driving their demand for new housing.
“The same isn’t true of the Coachella Valley,” he says. “Here, a much higher share of new residents [is] either retirees or preparing for retirement, or simply purchasing a vacation home. They are creating jobs in the valley construction industry, but not jobs for themselves.” Marra worries about the huge gulf between the valley’s median wages and median housing costs. “We rank very low in the state’s housing affordability index,” he says. “Most of our new jobs are low-paying retail, entertainment, food service, and the like. That’s a real problem. On the other hand, we do have a growing professional class with high-paying jobs — law, medicine, accounting, etc. — plus government and education are expanding categories that pay good salaries and perks.”
Here’s a population question without an official answer: What is the number of part-time (vs. permanent) desert residents? Nobody can say for sure, because the Census Bureau doesn’t acknowledge such a category. Yet there are countless thousands of seasonal, weekend, and other part-time valley homeowners, most with very high disposable incomes. Collectively, their impact on the economy is enormous. Utilizing the vast database of his Wheeler’s Desert Letter, Marra suggests that at the height of the winter season, Indian Wells’ permanent population roughly doubles, Rancho Mirage grows by two-thirds, Palm Desert and Palm Springs by one-half, and La Quinta by one-third. “These are only educated estimates,” Marra stresses. Indeed. But it’s a good bet they are broadly accurate.
Room(s) for Tourism Gains
Tourism is by far the Coachella Valley’s biggest industry, generating some $1 billion annually, according to the Palm Springs Desert Resorts Convention and Visitors Authority. This
valleywide joint powers authority exists to promote desert tourism in general and help fill our hotel rooms in particular. Every desert city cares deeply about that — except the city of Coachella, which has no hotels — because room rentals produce transient occupancy taxes (T.O.T., or bed taxes) that flow directly into municipal treasuries. Hotel room sales peaked here in 2000, and they’ve had a long climb back from the failed dot-com and post-9/11 doldrums.
Most of our cities finally made it in 2004, but two did not. Valleywide sales last year ran slightly behind those of 2000 mainly because Palm Springs, by far the biggest room-sales producer, and runner-up Palm Desert remain a smidgen off their previous highs. Marra notes, “The valley’s 12-month occupancy rate is static at less than 60 percent, plus per-unit productivity is still lagging. In 2000, our hotels on average produced $25,100 per unit; in 2004 they produced $23,400. Of course, we have added some 800 new hotel rooms to what we had five years ago. I do expect the massively expanded Palm Springs Convention Center [re-opening this month] to make a big difference in that city.”
Rob Osterberg, the CVA’s associate vice president of sales, heartily agrees with Marra’s comments on the Convention Center, which he believes will benefit the entire valley. Citing Smith Travel Research, a major travel-industry research organization, he says that in the first half of this year, valley room rates rose 1.6 percent from 2004, and revenue-per-available-room is up by 2.8 percent. “These are encouraging numbers for hotel profitability, even though occupancy rates remain flat,” he says.
Osterberg is also pleased that “corporate and association travel budgets are starting to open up again after the big cutbacks that followed 2000’s dot-com collapse, not to mention September 11, 2001. This means the meeting market is back — maybe not with quite the high-flying style it once had, but still a big improvement over the past several years. It is a key part of our marketing efforts.”
This year has seen a spate of reports anticipating construction of various new hotels to add to the desert’s current hotel-room inventory of 15,865. “If you believe everything you read,” Marra says, “there are 3,000 new valley hotel rooms in the pipeline.” He thinks an Embassy Suites in La Quinta is among the few certainties, and “Palm Desert’s proposed 400-room luxury property at its Desert Willow Golf Resort is likely, but only if the city decides to commit the money to make it
happen.”
Palm Desert City Councilwoman Jean Benson has served continuously as her city’s representative since the CVA board was created in 1989. As such, she has acquired a rare level of expertise in valley tourism. She agrees that Palm Desert will probably soon gain a luxury hotel at Desert Willow. “But I don’t think its size will be anything like 400 rooms,” she says. “I think developers and lenders are far more likely to opt for a much smaller hotel in conjunction with free-standing casitas. Remember, no destination resort hotel has been built in the valley since the late 1980s. The ones we have are great, but I’d be very surprised to see a new one constructed here in the immediate future.” She excludes tribal casino hotels from this prediction, since “the gambling industry creates its own opportunities and limits.”
Benson has a broader point to make: “I think increasing numbers of today’s desert tourists are looking beyond traditional hotel accommodations. While valley occupancy rates are barely moving, the demand for rental condos and well-managed luxury time-share units is soaring — mostly from repeat valley visitors who love spending time here but want more home-like settings than even the best hotel can provide.” What an interesting observation. Is part of desert tourism in the process of reinventing itself?
Record-Breaking Retail
Retail is on a roll in the Coachella Valley from one end to the other. After stumbling in the months following 9/11, sales recovered nicely in the latter half of 2002 and have not looked back since. Here it’s important to note that taxable-sales data reported in this 2005 Progress Issue is unavoidably six months behind our other categories. That is, exact figures are only available through fiscal year 2004 (July ’03 to June ’04) rather than for the full calendar year. The sole official source of this information is the state Board of Equalization, which typically issues its quarterly reports at least 12 months after the event. (Even the U.S. Census Bureau moves faster than that.)
But in this instance, at least, the delay doesn’t really matter: 2004 was a record-breaking (fiscal) year in valley retail, and unofficial information gathered by PSL for the last half of ’04 and since simply indicates more of the same. Marra sums it up: “Retail is very strong valleywide and looks to continue. Fiscal Year 2004 numbers show this is true for everybody. La Quinta’s huge gains were hyped by the new Wal-Mart Supercenter sales kicking in the second quarter of ’04 and Indio’s by the great success of its I-10 Auto Mall. Between them, Indio and Cathedral City now account for two-thirds of all valley auto sales. Yet Palm Desert retains its overall retail dominance with no auto sales at all.”
City halls adore retail because they get to collect one cent from every taxable sales dollar generated within their boundaries. So valley municipal treasurers revel in the fact that retail sales in all nine cities were sharply up from the previous 12 months, with a combined one-year increase of 12 percent. La Quinta and Indio — each ahead by about $100 million — did indeed do especially well. Valley leader Palm Desert added $120 million to attain taxable sales of $1.36 billion, 28 percent of the nine-city total. And second-place Cathedral City reached $845 million, 17 percent of the whole.
It’s a truism that retail is always in a state of flux. The desert is no exception. Take what’s happening in big-box stores alone: There’s a Wal-Mart Supercenter under construction in Palm Springs, and a new Home Depot is coming; another Supercenter, plus a Sam’s Club and a Lowe’s Home Improvement Warehouse, is going up near I-10 in Palm Desert; and Home Depot will add its fourth valley unit in Indio. Meanwhile, assuming Federated Department Stores completes its purchase of May Co., Federated has announced that its Macy’s name will replace that of Robinsons-May on all the latter’s stores. At Westfield Palm Desert, which hosts both, Macy’s will vacate at least two of its three mall locations and move into the approximately 200,000-square-foot premises of ex-Robinsons-May.
What about Macy’s vacated sites? Palm Desert Economic Development Manager Ruth Ann Moore is bullish: “We’re working very closely with Westfield on alternative uses. Actually, we’re all pretty excited. This presents a chance to be creative — perhaps to do a second major renovation of the mall. If so, we’d be aiming for a similar dramatic impact on customer draw.” She thinks another reason for surging mall sales is the recent addition of Sears to the mix. Moore is also fascinated by the current performance of El Paseo, the city’s mile-long, super-elegant shopping street. “Since The Gardens on El Paseo [a Saks-anchored retail center] opened,” she observes,
“taxable sales on El Paseo as a whole have grown exponentially ... they almost equal those of the mall.”
Marra agrees with Moore that Macy’s move presents Westfield with a golden opportunity for creative merchandising, and likewise accepts her take on booming El Paseo. He partly attributes this to “the solidity of core-business retail and restaurants, with failures occurring only on the fringe. Ditto The River at Rancho Mirage, which is much more about entertainment and dining than retail-focused El Paseo — they’re not really competitors — and is also doing well.”
We’ll leave the last retail word to Moore: “It’s fascinating to see retail square footage continue to expand in Palm Desert even in the midst of explosive East Valley residential construction and population growth. It shows that the entire valley market is growing and not just one segment of it.”
Property, Building Permit Values Impress
We combine these two categories — Assessed Property Values and Building Permit Valuations — because they both concern real estate investment. In California, when you buy or build on any piece of property, you are assessed the amount you spent for it: no more, no less. Thereafter, apart from small annual increments, plus the cost of any improvements you might make, the property assessment (hence the 1 percent property tax) remains more or less the same so long as you continue to own it. When you sell, it is reassessed accordingly and the buyer can likewise rely on the new base number until he sells, and so forth.
That is Proposition 13 in action. Many Californians say it is unfair and want it changed. Many more (judging by polls) say it is wonderful and tell the critics to keep their cotton-pickin’ hands off. PSL takes no position other than to say that any statistical report on “current assessed property values,” such as those published annually by the Riverside County Assessor and included in this issue’s city-specific special advertising pages, necessarily understate the included properties’ actual market value. In a soaring resale market such as exists today, a valley home purchased 10 years ago for, say, $100,000 may very well sell tomorrow for five times that amount. The difference would add to the assessor’s next report, but countless similar unsold homes would retain their dated assessed values — hence the inevitable understatement.
Even so, the published numbers are pretty impressive. All taxable property in all valley cities combined is currently assessed at $44.5 billion, up $7.2 billion, or 19 percent, from last year. At $10.4 billion in assessed value (third in the county), Palm Desert continues to lead the valley;
La Quinta is next at $7.8 billion. But look at the awesome one-year increases of Indio, up 39.5 percent, and Coachella, up 44 percent. It takes more than property resales to achieve leaps like these — which brings us to new construction, a second major determinant of a city’s total assessed property value.
Much the best measure of dollars invested in new construction is found in municipal building permit valuations. The desert’s record-breaking, nine-city total for 2004 was $1.85 billion, up by more than one-third from 2003, itself a record-breaker. Indio led the way with an utterly unprecedented $482 million, and La Quinta followed with nearly $350 million. No other city came close to those numbers, but they all did well. No question — these are grand times for valley builders.
You won’t get any argument from Ed Kibbey, executive director of the Building Industry Association’s Desert Chapter. He suggests that this year’s overall numbers may level off a bit, though that will vary by city. For instance, he thinks Indio may actually outperform last year. “What’s happening,” he says, “is a slight slowdown in housing starts in places such as La Quinta. On the other hand, many houses now being built are bigger and therefore more expensive.
So the net result could be fewer new homes than in ’04 but some increase in their total dollar valuation.”
Kibbey deliberately employs the word “bubble” as a kind of metaphor to describe the current building boom but defines it as simply a point that rises above the norm. He argues, “This bubble won’t burst. Instead, in time it will begin to deflate, but very gradually and without doing any great harm.” Quite independently, Wheeler’s Desert Letter Publisher Bob Marra uses almost identical phrases to describe the same phenomenon: “The valley construction boom is not a bubble likely to burst, but it is certain to level out.” He then quotes an adage favored by a much-admired U.S. business titan and friend: “Last I heard, there’s been no repeal of economic cycles.”
Kibbey absolutely rejects any hint that the prevailing boom rests on speculation: “Valley builders learned their lesson in previous decades. For some years now, we’ve built only to order and never on spec.” He’s no fan of real estate speculation in any form and notes with pleasure a seeming decline in speculative buyers of new homes — so-called “flippers” who purchase a new home not to live in but to rent for a year or two and then “flip” it by trying to sell at a huge profit.
In stark contrast are “move ups” who Kibbey suggests “make up about half the current buyers of new valley homes. These are folks who already live here or come from nearby places to take advantage of our somewhat lower prices with the aim of trading up to larger, more luxurious homes.” Meanwhile, valley construction is most definitely a full-employment industry. As long as mortgage rates stay low and lenders stay creative, it seems set to remain so into the indefinite future.
Story from the 2005/2006 Edition of FOCUS on the Coachella Valley, produced by Palm Springs Life Magazine for the Riverside County Economic Agency. Distributed in the Palm Springs Life October 2005 Magazine. More information available at http://www.rivcoeda.org/ |
