On The Market

241: Developers Are Ditching This State as Regulations Rise

Aug 8, 2024

Developers are fleeing California due to skyrocketing construction costs and lengthy permitting processes. The commercial real estate market, particularly office spaces, is facing a crisis with increasing vacancies. Interestingly, investors might still profit even when overpaying for properties, challenging perceptions of market value. As regulations tighten, finding innovative solutions for repurposing empty offices could lead to lucrative opportunities. The conversation encourages adaptability within a rapidly changing real estate landscape.

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Quick takeaways

Developers are leaving California due to high construction costs and regulatory challenges, leading to a housing shortage and potential rent hikes.

Investors are overpaying for properties by miscalculating renovation costs and ARVs, risking financial losses without thorough evaluations and market understanding.

Deep dives

Shifts in California Real Estate Development

Developers are increasingly relocating their operations from California due to high construction costs and stringent regulatory requirements for obtaining permits. The challenges have led to a significant housing shortage, raising concerns over the potential for rent hikes in older, less desirable properties. Meanwhile, some investors see this shift as an opportunity due to reduced competition, as they capitalize on the urgent need for housing. For instance, while California is projected to generate fewer rental units than the Dallas-Fort Worth area, states like Texas are easier for developers to navigate, making them more attractive for new projects.

Intro

2min

Navigating Development Challenges in California

7min

Navigating State Regulations in Real Estate

6min

Navigating Challenges in Commercial Real Estate

6min

Navigating Commercial Assets and AI Evolution

3min

Navigating Real Estate Renovations

8min

Navigating the Changing Market and Finding Support

2min

Why are developers ditching California NOW? Is commercial real estate still struggling, and what’s up with all those empty office buildings all over town? Does it seem like everyone is overpaying for properties nowadays? It’s not just you; we’ve been seeing it, too, but there’s a reason why they’re doing it. Today, we’re touching on hot topics from the BiggerPockets Forums and giving our takes on what investors are seeing in today’s housing market.

First, everyone has another reason to bag on California real estate as developers decide to move out of the state, thanks to rising construction costs, long permitting times, and bureaucratic inefficiencies. But in a state with such massive appreciation and high rents, is it really the right move to make?

Next, we’re back to the commercial real estate crash, specifically, the office investing space crash, as more and more buildings sit vacant. There’s one way to solve this, and doing so could make you a LOT of money. Who’s got the guts (and the money) to make something out of all those empty offices? Finally, we’re discussing WHY investors commonly overpay for properties and how they may be making money EVEN when you think their offers are ridiculous.

Do you have an investing question? Ask it on the BiggerPockets Forums!

In This Episode We Cover

The developer departure from California and why builders are ditching the Golden State

Changing regulations and how it’s getting harder to build rental units

Office space’s continued struggles and the one way investors can solve this problem

Overpaying for properties and why investors commonly offer over the ARV (after repair value)

How to audit your construction/renovation costs to know if you’re throwing away money on your rehabs

And So Much More!

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