Inland Empire & San Bernardino County 2009-10

A Very Difficult Period!

4/25/2020

John Husing, Ph.D. Economics & Politics, Inc.

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So. Calif. Job Change, 1984-2009

Southern California Employment Growth Annual Change, 1983-2009e

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009yt d 4/25/2020 2009 based on percentage change first NINE months 2008-2009 Source: CA Employment Development Department 2

Inland Empire Job Change, 1984-2009 Job Change Inland Empire , Annual Av e rage , 1984-2009ytd

19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 4/25/2020 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 e 2009ytd=January to September Sources: CA Employment Development Department, Economics & Politics, Inc.

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Worst National Unemployment Rates

Cincinnati Nashville New York Orange Co.

Memphis St. Louis Chicago Louisville Birmingham San Diego San Francisco Alanta Jacksonville Miami Portland Orlando Charlotte Tampa Sacramento San Jose Providence Los Angeles Las Vegas 4/25/2020 Detroit

U ne mployme nt R a te s, H ighe st 25 of 49, Se pte mbe r 2009 U .S. Me tropolita n Are a s Ove r 1 million Popula tion 9.2% 9.3% 9.3% 9.5% 9.9% 9.9% 22 10.0% 10.0% 10.2% 10.2% 10.4% 10.5% 16 10.7% 10.9% 10.9% 11.5% 11.6% 11.7% 11.8% 11.8% 12.4% 12.7% 4

Source: U.S. Bureau of Labor Statistics

13.9% 14.2% 2 17.3%

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Unemployment Can Get Stuck For Years U.S. & Inland Empire Unemployment History, 1929-2009

U.S.

Inland Empire 26.0% 24.0% 22.0% 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 

not U or V

4/25/2020 Source: U.S. Bureau of Labor Statistics & U.S. Census Bureau 5

4/25/2020

What Happened?

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Shrinking Our Economy

E xhibiti 20.-T ota l Building P e rmit V a lua tion Inla nd E mpire , 1990-2009e (billions) $10.6 Billion Hole In IE Economic Base $4.5

$2.9

$8.3 Billion From $4.2

$3.3

$2.5

Residential Decline $5.1

$5.4

$6.1

$7.2

$9.1

$12.1 $12.5

$10.6

$7.0

$3.9

$1.9

19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 2009 based upon 1st quarter 2008-2009 percentage change Construction Industry Research Board 20 04 20 05 4/25/2020 20 06 20 07 20 08 20 09 e 7

-$10.6 Billion

4/25/2020

Another -$10.6 Billion Primary Tier

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Prop 172 Changes: Month Vs. Last Yr.

Based On California Retail Sales 2.2% 7.8% 1.4% 4.2% 6.6% -2.0% -6.9% Ca lifornia P rop 172 R e ce ipts Compa re d T o S a me Month Y e a r Ago 7.2% 1.8% 2.4% 3.5% 2.8%3.5% -2.6% -1.7% -4.6% -7.0% -2.1% -8.0% -1.0% -4.7% -3.2% -3.8% -6.0% -7.4% -9.0% -14.6% -16.1% -15.9% -20.1% -18.2% -20.5% -21.9%

4/25/2020 9 Source: CA State Controller

Housing Demand Rose With Population Slow Growth NIMBYs Endangered Species Water CA Home Restrictions Just Under LA & OC Production In 2006 or 2007 1997 18.3 million people/3.9 million SFR homes = 4.66

1997-2007 Add 3.2 million people: Need 709,600 homes = 4.66

1997-2007 Actual New homes 552,900 1997-2007 Shortfall 156,700 Annual Production Too Low: 15,670 a year

4/25/2020 10

Prices Had To Take-Off To Eliminate Buyers Exhibit 8.-Price Trends, New & Existing Homes Inland Empire, 1988-2008, Quarterly $404,611

420,000 400,000 380,000 360,000 340,000 320,000 300,000 280,000 260,000 240,000 220,000 200,000 180,000 160,000 140,000 120,000 100,000 80,000 4/25/2020

1997-2003 12.9% per year

Source: Dataquick

2003-2006 19.7% per year

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Sales Soars Until Late 2005 … Back to 2002 Price Peak E xhibit 4.-All H ome s S a le s, Inla nd E mpire S e a sona lly Adjuste d, by qua rte r, 1988-2009 29,614 20,039

32,000 30,000 28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

11,376 78.1%

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 4/25/2020 1998 1999 2000 Source: Dataquick 2001 2002 2003 2004 2005 2006 2007 2008 2009 12

Inland Empire Has 1,080,328 Homes Home Traded 2004-7 Notices of Default Share of 2004-7 359,044 (33.2%) 232,535 64.8% Balance Are Future Issue + Unemployed + Piggy Bank Loans

4/25/2020 13

Sub-Prime Over

4/25/2020

Alt-A Option Adjustable

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4/25/2020 

Is There Any Good News?

YES!

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4/25/2020

Supply & Demand

Supply From Foreclosures

vs.

Demand From Lower Prices

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Demand > Supply & Price Rising Exhibit 5.-Price T re nds, Existing H ome s Inla nd Empire , 1988-2009, Qua rte rly $389,924

$400,000 $380,000 $360,000 $340,000 $320,000 $300,000 $280,000 $260,000 $240,000 $220,000 $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 Source: Dataquick & Economics & Politics, Inc.

4.3% $161,931

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 17

75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

59%

4/25/2020

Soaring Housing Affordability Easily Sets A Record

H ousing Afforda bility, Inla nd E mpire S ha re of Fa milie s Afford M e dia n P rice d H ome 68% 4.5 Times 15%

Source: CA Board of Realtors 2006 2007 18

4/25/2020

Some Market Normality Has Returned

July Foreclosure Sales Riv. Co.

59% down from 71% in Jan.

SB Co.

61% down from 69% in Apr.

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Price Advantages/Disadvantages

$219,000 Home Price Advantage, So. California Markets Median Priced New & Existing Home, 3rd Quarter 2009

Median All Home Price Inland Empire Advantage

$498,000 $366,000 $332,000 $279,000 $147,000 $113,000

Inland Empire 4/25/2020 Los Angeles Source: Dataquick San Diego Orange 20

Standing New Home Inventory 2 nd -2009

Fontana-Rialto San Bernardino-Colton-East Highlands Loma Linda-Redlands High Desert Chino-Ontario Rancho Cucamonga-Upland SAN BERNARDINO COUNTY 4/25/2020 Built 10 11 12 45 6 10 94 Constr.

46 17 19 229 59 23 393 Total 56 28 31 274 65 33 487 21

Consumer Confidence In Future At Dec 2007 Level (pre-Recession)

Exhibit 2.-U .S. Consume r Confide nce Future Outlook, July 2007-Pre se nt

Source: Conference Board Ju ly -0 7 A ug -0 7 Se p 07 O ct -0 7 N ov -0 7 D ec -0 7 Ja n 08 Fe b 08 M ar -0 8 A pr -0 8 M ay -0 8 Ju n 08 Ju l-0 8 A ug -0 8 Se p 08 O ct -0 8 N ov -0 8 D ec -0 8 Ja n 09 Fe b 09 M ar -0 9 A pr -0 9 M ay -0 9 Ju n 09 Ju l-0 9 A ug -0 9 Se p 09 O ct -0 9 4/25/2020 22

Price Stability Now Likely

April May June July August Sept.

4/25/2020

Riverside

$ 180,000 $ 180,000 $ 185,000 $ 185,000 $ 190,000 $ 185,000

San Bernardino

$ 138,500 $ 137,000 $ 140,000 $ 140,000 $ 145,000 $ 150,000 23

259,200 Unemployed – Nearly 3 times Normal N umbe r of U ne mploye d Inla nd E mpire , 2000-2009 282,600 89,450

Jan-00 Jan-01 4/25/2020 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Source: CA Employment Development Department Jan-07 Jan-08 Jan-09 24

4/25/2020

Office Market

Housing Slowdown Hurts!

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Office Absorption

2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 (200,000) (400,000) (600,000) 4/25/2020

Exhibit 10.-Office Net Space Absorption Moving 4-quarters, Inland Empire, 1991-2009 Absorption Fell With Housing Slowdown

Source: Grubb & Ellis & Economics & Politics, Inc.

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28% 26% 24% 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 4/25/2020

Office Vacancy Rate Has Jumped Dramatically Office V a ca ncy R a te Inla nd E mpire , 1991-2008

Source: Grubb & Ellis

23.6% 7.0%

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Vacancy Rates By Area, 3

rd

-2009

Office Availability Rate, 3rd Quarter 2009 Inland Empire, By Market

Source: Grubb & Ellis

26.6% 25.8% 24.4% 23.6% 22.6% 18.8% 16.9% 29.0% 23.2% 10.7%

4/25/2020 28

Office Vacancy Rate Up Everywhere!

Inland Empire Orange County San Diego Los Angeles County

4/25/2020

2005 7.4% 8.8% 7.0% 12.2% 2009 23.6% 18.0% 18.0% 13.6%

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Inland Empire Orange County San Diego Los Angeles County

4/25/2020

Lease Rates Down!

2007 $2.18 $3.13

$3.20

$3.28

2009 $2.17

$2.50

$2.87

$3.06

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•Housing Finance •Escrow •Title •Home Insurance •Developers •Engineers

Why?

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Refinancing Is A Growing Issue

•High Vacancy Rates •Falling Lease Rates •Balloon Payments 4/25/2020 32

4/25/2020

Blue Collar Industrial Jobs

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Why Blue Collar Jobs Important?

H igh S chool or Le ss S chool, 2008 S ha re of P opula tion, 25 & Ove r

58.0% 48.5% 47.8% 45.5% 42.6% 37.1% 35.7% 34.0% Imperial San Bernardino Riverside 4/25/2020 Los Angeles So. California Ventura Source: American Communitu Survey, 2008 Orange San Diego 34

Ports On West Coast Nearest Asia

4/25/2020

Los Angeles Long Beach

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Deep Water Ports As Ships Draw Over 50 feet of Water

8,000-Container Post-Panamax Ships

4/25/2020 36

International Containers Thru So. Calif.

Were 43% of U.S. … But … Port Container Traffic Ports of Los Angeles & Long Beach, 1990-2008 & Long Term (million TEUs)

42.5

42.5

Loss of 4% Market Share

3.7 3.8 4.1 4.4 5.1

5.4 5.8 6.5

7.5 8.2

9.5 9.6 10.6

11.813.1

14.215.815.714.5

4/25/2020 TEU=20 foot equivalent container units Source: Ports of Los Angeles & Long Beach; forecast: Moffatt & Nichol Engineers 37

U.S. Economy Has Shrunk

750 500 250 0 (250) (500) (750) (1,000)

1998 4/25/2020 1999 2000

Job Cre a tion or D e struction U .S ., 1998-2009, S e a sona lly Adjuste d (000)

2001

-7,205,000 Jobs

2002 2003 2004 2005 Source: U.S. Bureau of Labor Statistics 2006 2007 2008 2009 38

Ports Increasingly Regarded As Unreliable

       

UP Buys SP, Trains Can’t Move ILWU-PMSA Lockout/Strike 93 Ships Can’t Be Unloaded: Not Enough Labor Rains Wash-Out Rail Track Clean Truck Fees Employee Truck Mandate & Law Suits Riverside Suing Ports LA Supporting Teamsters Legislation to Organize Ports

4/25/2020 39

The Diversion Fear : 4-Corners Strategy Loss of 4% Market Share

4/25/2020

Port Imports Have Crashed

551

1998 4/25/2020

Growth of Importe d Conta ine rs Ports of Los Ange le s-Long Be a ch, 1998-2009e (000 of te us) 934 654 670 788 454 349 443 160 (59) (787)

1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: Port Import Export Reporting Service (PIERS), collected from Vessel 2009 Based on average of first for months change 2008

(1,583)

2009e 41

Logistics Joined Blue Collar Job Losses Ma nufa cturing & Logistics E mployme nt S outhe rn Ca lifornia , 1990-2009e

Manufacturing LOGISTICS Construction 1,200,000 1,000,000 800,000 600,000 400,000 200,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 4/25/2020 Source: CA Employment Development Department Note: 2009 estimated based on change January-July 2008-2009 42

(64,200) (73,500) (84,900) (19,200) 7,600 Ma nufa cturing E mployme nt Cha nge S outhe rn Ca lifornia , 1990-2009e 24,000 33,300 27,000 (3,300) (13,500) (46,900) (12,700) (21,500) (36,100) (48,900) (63,764) (72,600)

Source: CA Employment Development Department

S outhe rn Ca lifornia , 1990-2009e 16,950 10,000 24,050 16,650 11,850 8,650 15,700 14,300 (2,300) (7,350) (14,500) (4,700) (14,100) (9,000) (40,463) (21,900) (35,850) (55,050) S outhe rn Ca lifornia , 1990-2009e

Note: 2009 estimated based on change January-July 2008-2009

12,80013,450 18,600 32,10033,850 21,45023,250 17,350 34,80031,950 25,750 2,800 (500) (25,800)

4/25/2020 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: CA Employment Development Department Note: 2009 estimated based on change January-July 2008-2009 2005 2006 2007 2008 2009 43

Logistics Gained 76,500 But Now Lost -6,900

Logistics S e ctor Job Growth Inla nd E mpire , 1991-2009ytd 2,600 1,700 3,500 2,600 4,300 3,700 3,300 4,900 4,600 4,800 2,300 1,300 4,900 7,500 8,700 7,500 8,300 (1,000) (6,900)

1991 1992 4/25/2020 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: CA Employment Development Department 2009=Jan.-Apr. Average.

2004 2005 2006 2007 2008 20 09 yt d 44

Industrial Absorption Has Stopped

Industria l Spa ce Gross Absorption Inla nd Empire , 1991-2009 (moving 4-qua rte r tota l)

50,000,000 45,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 1991 1992 1993 1994 4/25/2020 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Grubb & Ellis & Economics & Politics, Inc.

2009 45

Industrial Vacancy Rate Soaring

26% 24% 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

Industria l S pa ce V a ca ncy R a te Inla nd E mpire , 1991-2009 SB-Redlands 21.4% Moreno Valley-Perris 18.8% Ontario-Mira Loma 8.0% 11.8%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: Grubb & Ellis 2003 2004 2005 2006 2007 2008 2009 46

When Will “Normal” Start To Return? 2010 National 2011 California 2012 So. Calif.

If Policies Work!

47 4/25/2020

While Waiting For Recovery….

4/25/2020 48

4/25/2020

www.johnhusing.com

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