Quentin Schulman, the 28-year-old head of a Santa Barbara pressure-washing business, had never invested much outside the stock market and it took him two years scouting opportunities before he decided late last year to buy a modest duplex in north Bakersfield.
Schulman said he's bullish about Bakersfield's "robust economy" and low residential vacancy rates, even if he's a little nervous about how restaurants are managing through the pandemic and the changes oil producers face amid California's push toward cleaner energy.
Having looked as far as the Midwest, his bottom line was financial return on investment.
"At the end of the day, it's really about the numbers and in that area (Bakersfield), they're really attractive and I feel good about the growth prospects," he said.
The pandemic doesn't appear to have dimmed Bakersfield's shine among out-of-town investors. In some areas like multifamily residential, industrial and even retail property, local real estate professionals say the city may have become even more attractive to people looking for somewhere to park their money.
Outsider interest in local properties is hardly new in Bakersfield, and a high level of investor activity is to be expected with interest rates at historical lows and inflation fears rising. But people in the business locally say the mostly positive conditions have been a little surprising through the pandemic.
Apartment tenants have largely kept up with rent, they say, and while storefront retailers may have had to negotiate lower monthly payments, most have survived. There are suggestions, too, that demand is growing for local manufacturing space and other industrial properties.
"We are just swamped. We're amazed," said Bakersfield commercial property broker Mary Sawyer, who recalled a recent visit by a redeveloper in town from San Jose "trying to buy up some retail space." Investors she's working with at Portfolio Properties want to fix up undervalued properties to bring in new stores.
Nowhere is investor demand stronger in Bakersfield than it is in the multifamily residential market. Local vacancy rates fell last year to the extraordinary low of 1.7 percent and year over year rent growth reached a very attractive 9 percent.
Bakersfield multifamily property specialist Marc Thurston said in an email all the inquiries he gets are from out of town. Investors like the local market's high income-to-cost ratio — its capitalization, or "cap," rate — relative to the rest of the state.
Heavy competition for deals in urban areas is one reason people continue to look in Bakersfield, he said. But there's also a sense things in the area are going well overall.
"Despite concerns about both the oil and ag industries, the economic outlook is still very favorable," said Thurston, senior vice president at ASU Commercial.
Bakersfield industrial property specialist Wayne Kress said three things play to local real estate's benefit these days: Big-city people are fleeing urban ills, pandemic shortages have rekindled interest in domestic manufacturing and retailers see new value in storing extra supplies in warehouses, for which Bakersfield has ample, well-situated space.
The partner and senior director of Cushman & Wakefield Pacific referred to three recent, local instances of speculative development of distribution center facilities, in which investors build projects without first having a lease commitment. These somewhat risky projects largely disappeared during the Great Recession but, Kress said, "It's starting to show up again."
There seems to be a consensus investments are up but not everyone's fired up about a localized boom.
Bakersfield commercial property broker David Williams said by email investors generally have been active lately and local cap rates are holding at pre-pandemic levels. He said interest is strong for stable, leased income properties overall.
"I anticipate that trend to continue as long as interest rates remain low," the senior vice president at Colliers International wrote.
It would be a stretch to say Bakersfield's real estate market is outperforming in every category from multifamily to retail because each classification responds to different factors, Bakersfield broker and developer Anthony Olivieri wrote in an email.
The Olivieri Commercial Group principal said he has seen no new impact from investors outside the area lately, with the exception of the multifamily residential market, which is also considered commercial real estate. But Bakersfield might benefit from what he said was a "very low inventory of quality investment options in most commercial sectors" in the broader market for real estate.
Retail property broker Scott Underhill, partner at Newmark Grubb|ASU, said local rents have fallen 25 percent or more during the pandemic but not as many storefronts as expected have gone dark. What's more, he said discretionary goods retailers are back to business as usual.
Not as many tenants as before are looking for a place to rent, but some are, he said, as brick-and-mortar retailers meet the challenge of e-commerce. He pointed to ongoing construction at a 137,222-square-foot shopping center south of Panama Lane and east of Highway 99. An 80,000-square-foot Floor & Decor store is expected to open there by midsummer.
Real estate information company CoStar Group reported 59 percent of Bakersfield's retail property sales volume it tracked in 2020 came from investors based outside Bakersfield. That's down 6 percentage points from 2019 but the dollar amount was higher, CoStar said, largely because Modesto-based The Save Mart Cos. in November sold 53 properties, including several local stores, to a Chicago-based private equity group.
Daniel Holt, a broker associate working with Sawyer at Portfolio Properties, said some investment organizations he hears from lately have singled out the Bakersfield market. They look for reasonably priced retail properties they can improve and hopefully fill vacancies, he said, adding, "I've never seen it this good."
"I think that whatever these investors are studying they see ... opportunities and have plans on how they can restructure (properties) and make them viable," he said.