Steady As We Grow

Hank Stokes Real Estate 0 Comments

By California’s epic geographical standards, the Coachella Valley is not especially large. It measures perhaps 35 miles from east to west and averages fewer than 19 miles from north to south. Yet, nine extraordinary cities lie within its roughly 640 square miles of wholly desert terrain. Each claims its own pride of place: Palm Springs is the most famous, Indio is the biggest and oldest, Palm Desert is the commercial hub, and so forth.

Thus far in the new century, this valley has been one of the fastest-growing parts of the fastest-growing “big” county in a consistently fast-growing state. But its component cities have their own comparative strengths and weaknesses, and these in turn vary from year to year in response to changing conditions and events. Each October, Palm Springs Life gathers informative data for the latest complete year from unimpeachably objective sources and seeks out the opinions of relevant experts. We then proffer the results in a state-of-the-valley economic/demographic assessment in this, our annual Progress Issue.

On the following pages, we present the nine-city data for 2005 in five key categories: population, new construction, assessed property values, retail sales, and hotel room sales. Taken together, these paint a comprehensive picture of the current desert economy.

As you’ll see, 2005 was an exception-ally good year, a happy circumstance that seems to be continuing. In any case, it is now certain the valley has completely recovered from its 2001-02 business slowdown. There is some unevenness, of course, and points of frailty here and there. But whoever heard of a silver lining without at least one or two tiny clouds, right? 

If you’re curious about a specific city’s performance — current and historical — in any or all categories, consult the 10-year bar charts in this issue’s special municipal advertising section. The information is very revealing.

State demographers estimate that 2005 was another year of rapid population growth, although not at the same rate as 2004. This time, two desert cities made the state’s list of “10 Fastest Growing Cities Based on Percent Change”: Coachella at 13.7 percent and Desert Hot Springs at 12.8 percent. Yet growth rates generally cooled (as one local wit put it) “from sizzling to merely torrid.” For instance, in percentage terms, Riverside County remains California’s fastest-growing “big” county with nearly 2 million residents, but its population increase slowed to 3.4 per-cent last year (from 4.45 percent in 2004).

Similarly, Indio’s one-year growth rate fell from an incredible 9.9 percent to a still-hefty 7.7 percent. Now, with an estimated 71,654 year-round residents, Indio is the desert’s largest city by far and continues to open the distance from second-place Cathedral City (51,081). Oddly, the latter’s estimated population increased last year
by only 0.2 percent, and that of third-place Palm Desert actually declined by 0.1 percent to 49,539.
Given the consistently substantial growth histories of both cities, these seeming numerical anomalies may need to be set right in next year’s state estimates.

The desert’s remaining major people-gainer is La Quinta, up 5.4 percent to 38,340. Otherwise, the permanent populations of Palm Springs (46,437), Rancho Mirage (16,672), and Indian Wells (4,865) each reflect a modest rise of about 1 percent.

Nobody understands the complex valley economy better than Bob Marra — owner of Wheeler’s, a La Quinta-based market research company, and publisher and co-publisher, respectively, of two venerable local business publications: Wheeler’s Desert Letter and The Public Record. Marra, who provided some of the data cited in this issue, sees today’s desert economy as “maturing, more sophisticated, more diverse, all of which are the inevitable results of population growth.”

Marra notes that better-paying jobs are finally becoming more plentiful and thinks those job providers fall into two categories: what he calls “population-serving industry” and “companies that could locate anywhere, but choose to locate here.”

He defines the first group as “additional professionals [doctors, lawyers, architects, etc.], managers, skilled service people, and the like needed by our growing population, many of them monied.” As an example of the second group (“still pretty few in number, sadly”), he cites Ernie Ball Inc., a popular manufacturer of guitar strings. Marra notes ruefully that, like everyplace in the state, we share the “California stigma” for business-unfriendly high costs and regulatory hurdles.

Marra is acutely aware of the seasonal and weekend population’s immense importance to the valley’s resort economy, and every year he utilizes his vast Wheeler’s database to calculate their numbers. “The desert’s part-time residents typically have very high disposable incomes,” he says. “They play a huge role in our service and retail economy, in some respects probably more than year-rounders do. But the U.S. Census Bureau doesn’t count them. Maybe that’s why they are continually overlooked in economic discussions by all kinds of local folks who ought to know better.”

Currently, he puts the valley’s total part-time population at 142,000. Breaking that figure down on a city-by-city basis, he concludes that Indian Wells approximately doubles its permanent population in winter, Rancho Mirage balloons by 75 percent, Palm Springs and Palm Desert by 60 percent, and La Quinta by 50 percent. The remaining four cities also expand, but proportionately by much less. Put all these together and in the coming winter season you can expect well over half a million people in our little valley … and that’s not counting the tourists.
Where the present state of desert retail is concerned, there is simply no visible downside. Every part of the valley is performing well — better, and indeed in some cases vastly better, than they have ever before.
Palm Springs Life makes this assertion with confidence even though we lack official data from the last two quarters of 2005. That is because the state Board of Equalization, the collector of California sales taxes and thus the only official source of all taxable sales information, takes its sweet time to issue quarterly reports.

Consequently, Taxable Sales is the one category we have to report by fiscal year, rather than calendar year. But
it really doesn’t matter: The official news is good and, unofficially, reports continue upbeat for the remainder of 2005 — and for this year as well. 

Ruth Ann Moore, Palm Desert’s economic development manager, applauds the valleywide retail sales growth. “Credit the home-building boom at both ends of the valley, especially in the east,” she says. “It proves again that retail follows rooftops.” Palm Desert is by far the biggest overall producer, of course. Its FY 2005 total sales came in slightly below $1.5 billion, considerably ahead of runner-up Cathedral City’s $919.4 million. (Check with either of those two city halls, by the way, and they’ll likely tell you the more current numbers are $1.7 billion and $1 billion, respectively. They’re probably correct, but to maintain this report’s credibility, PSL must rely on disinterested sources, however slow.)

Speaking of her own city, Moore is excited by the imminent arrival of a 40,000-square-foot Bristol Farms market, the valley’s first, and even more by last spring’s announcement that Nordstrom will be building a 144,000-square-foot store to open at Westfield Palm Desert in 2009. She thinks that event, in tandem with a carefully vetted mix of neighboring tenants there, will make Westfield a “super-regional mall” and likely pre-empt any serious valley rival for the foreseeable future.

Moore thinks that Palm Desert’s retail range is extremely unusual, and perhaps unique, among U.S. cities of its size. “It provides the widest possible merchandise choice,” she marvels. “At one end, you have stores like Saks and Tiffany’s on carriage-trade El Paseo, and at the other are big-box and discount stores, plus everything in between. You just don’t find this kind of selection outside a major metropolitan area. Except for cars, there’s very little any customer could want that isn’t sold in Palm Desert.” 

Marra agrees that Palm Desert’s A-to-Z range of retail offerings is rare, noting that the surrounding seasonal population is a huge factor in that city’s success because of its per-capita spending. He also says that Palm Desert’s prodigious sales are all the more remarkable because it has no auto dealerships. “Talk about big-ticket items,” he says. “Look at last year’s auto and auto supply sales: $380 million in Cathedral City, $250 million in Indio, $121 million in La Quinta. Those are the three cities with auto malls. Between them, they pretty well blanket the valley market.”

Marra views La Quinta as “the new Palm Desert in the sense that it has now developed a very large retail base, mostly big- boxes and ancillary stores aimed at the rapidly expanding East Valley population.” Those combined with auto sales to make La Quinta the valley star for FY 2005 sales growth: up by $120.6 million, or a phenomenal 23 percent, to reach a total of almost $634 million.

Some think the valley has gone crazy with big boxes. It’s interesting that they’ve somehow organized themselves into three de facto geographical groupings. In the West Valley, a Wal-Mart Supercenter, Lowe’s, Home Depot (soon), etc. are clustered near the intersection of Ramon Road and Gene Autry Trail in Palm Springs. Midvalley big boxes are concentrated on Monterey Avenue near Interstate 10 and include a Wal-Mart Supercenter, Sam’s Club, Costco, Lowe’s, etc. in Palm Desert and a Home Depot in Rancho Mirage. And the East Valley’s array of big boxes stretches along La Quinta’s Highway 111 corridor east of Washington Street, with more to come in Indio down the road. There seems to be ample business for them all. If that doesn’t demonstrate the viability of the Coachella Valley’s retail market, we don’t know what will. 

Tourism is the Coachella Valley’s primary industry, with agriculture a distant second. For years, various authorities routinely assessed desert tourism’s economic impact at $1 billion per year, or more recently
$1.5 billion, always without either accompanying explanation or source reference — and the media (including Palm Springs Life) never pressed the point.

Now we all know better. Last spring, Marra and Bruce Bonafede, co-owner/editor of The Public Record, applied an industry-validated formula to current state, county, and local data and concluded that valley tourism’s yearly economic impact is actually at least $4 billion. It was a convincing achievement. Their methodology and data, laid out for all to see, instantly became the accepted standard.

Last year provided something of a milestone: Hotel room sales are the most tangible measure of valley tourism, and last year’s total finally passed the previous record set in 2000. The effects of Sept. 11, 2001, had merged with a national economic slowdown to create some tough years for the travel industry. Still, the valley recovered faster than many areas. Passenger traffic at Palm Springs International Airport has been setting records since 2004. It just took a little longer for hotel room sales to bounce back.

Of the eight valley cities with hotels (Coachella is the lone exception), the 2005 room-sales figures show that only Palm Springs is still slightly shy of its 2000 mark. Even so, Palm Springs remains the dominant player in valley tourism. Its name is the “brand” known worldwide, its 2005 room sales ($109.6 million) are well ahead of
second-place Palm Desert ($92 million), it has thousands more hotel units than any other desert city, and it has its convention center as a meeting magnet. Last year, the annual hotel occupancy rate increased slightly in Palm Springs and slightly more in the valley as a whole, as did annual RevPAR (revenue per available room, a key industry performance measure.) Yet both are still significantly below state and national averages.

 That fact doesn’t trouble Jeff Beckelman, president of the valleywide Palm Springs Desert Resorts Convention and Visitors Bureau. “You can’t judge by those annualized numbers,” he says. “Our hotels do much better in-season than hotels do elsewhere. It buys our guys some slack for off-periods. Of course, it’s part of our job at the CVA to help get RevPAR and occupancy numbers up by attracting more business in the summer and shoulder seasons.

“We need to build benchmarks,” Beckelman continues. The man brought in to run a previously stumbling CVA recognizes the need to understand the profiles of valley visitors. “I don’t think there’s a one-size-fits-all desert tourist. I assume, for example, that the visitor who opts to stay at the La Quinta Hotel is a different sort of person from the one who books a room at the Wyndham. Likewise, we know that many Germans and British love to visit in the summer, but we don’t really know who they are. We have to learn such things before we can devise effective programs.”

Accordingly, at this issue’s press time Beckelman was seeking his board’s approval of a major research program contracted to Wheeler’s. Marra makes the point that “there are actually some 20 credible valley hotel and hotel-condo projects in the pipeline. If all were built — which will not happen — they would add 5,000 rooms, one-third as many as we have now. If nothing else, it shows that the hotel industry has faith in valley prospects.”

Likewise, Beckelman sees evidence of owner confidence in the spate of hotel remodels and expansions underway, citing The Lodge at Rancho Mirage and Rancho Las Palmas in Rancho Mirage, the Riviera in Palm Springs, and the La Quinta Hotel. Among prospective new properties, he mentions the Sheraton in Cathedral City, the Agua Caliente hotel next to its Rancho Mirage casino, Hard Rock and W aloft in Palm Springs, and W Hotel at Desert Willows Golf Resort in Palm Desert. “True, except for the Agua Caliente project, none of these is certain. But all are more than just possible. That’s very exciting.”

If all we knew about the Coachella Valley was the change in its cities’ official assessed property values between this year and last, we might reasonably think that it must be the richest place in the country. After all, every valley city but one experienced a double-digit percentage increase. Two actually increased the total assessed value
of their real estate by well over 50 percent. This demonstrates how misleading out-of-context statistics can be.
The single exception is diminutive Indian Wells, the desert’s wealthiest city by almost any standard. Its current assessed property value ($4.3 billion) gained a “mere” 8.31 percent — no surprise because its building-
permit valuations last year were the valley’s smallest. They always are; it’s a tiny city. Conversely, the two cities showing spectacular increases are Desert Hot Springs and Coachella, historically the valley’s least affluent, yet now with assessed values up by 70.22 percent to $1.7 billion and 64.53 percent to $1.5 billion, respectively. They both have what builders most need: open land. In each case, last year’s booming construction activity directly affected this year’s greatly expanded assessed value.

Palm Springs Life combines discussion of these two categories because it makes sense. One cannot grasp the significance of a community’s changing assessed property value (real estate investment) without simultaneously reviewing the previous year’s relevant building-permit valuations (new construction). In post-Proposition 13 California, the one feeds directly into the other. It is not the entire story, but it is a principal contributor to sharply rising assessed values in the Coachella Valley and elsewhere.  

Recently, the valley construction industry has been on a glorious roll, setting new building-permit records every year until figuratively exploding off the chart in 2004. Last October, Palm Springs Life asked whether this could continue, and received the answer, “Yes, but…” Sure enough, the 2005 numbers were basically flat; they didn’t grow, but neither did they decline from 2004’s feverish rate. Moreover, the first half of this year saw a new surge in building permits, mostly in Indio.

What’s going on?

Fred Bell, executive director of the Building Industry Association’s Desert Chapter, says, matter-of-factly, “I expect only modest construction increases in the short term, say for the next couple of years. As for the recent run-up in Indio permits, I attribute it to builders’ natural desire to pull permits before that city’s 100 percent building-fee increases began in August.”

Bell cites several factors working to reduce demand. “Thanks to interest-rate hikes, the investor market [people who buy a new home as an investment rather than a place to live] is no longer in the mix,” he says. “Our Los Angeles-San Diego feeder markets have also cooled off, and even current fuel prices have had at least a marginal effect.” But he notes that “even modest increases over the recent hugely record-setting years prove the valley construction industry is very, very healthy.”

Independently, Marra deplores the fact that “midlevel-priced valley homes are no longer affordable by valley residents with midlevel incomes. Price increases are slowing, but have not stopped.” Bell agrees that “this question of local affordability is a real one. We and others are desperate to mitigate it, but so far without a lot of success.”

When added to new-home costs, the escalating fee structure unquestionably contributes to high prices. “Still, you can’t have new houses without the infrastructure to support them,” Bell says. “That’s why our members consistently support necessary fee hikes, even huge ones like Indio’s or the recent major boosts in transportation fees. After all, we need to pay our way.” Then he adds (with a chuckle), “But not one penny more.”

Looking ahead, Bell foresees changing proportions between residential and commercial construction, with the latter likely to ab-sorb a bigger share of building permits than in the past. “Given all the new rooftops,” he says, “it’s bound to happen. Shops, offices, other commercial structures of every kind must be built to house the businesses these new residents will need.  Geographically, the bulk of new construction is sure to go where most of the open land still exists: to Desert Hot Springs in the west and to Indio, La Quinta, and Coachella in the east. Infill will likely continue in Palm Springs, where I also expect to see some mixed-use construction downtown.”
Essentially, Bell is predicting more of the same. Who can’t live with that? 

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