A Q&A with Geoffrey Ross, a deputy director at the California Department of Housing and Community Development.
Bubble Watch digs into trends that may indicate economic and/or real estate troubles ahead.
The trend
If you were looking for a commercial real estate bubble to pop, first ponder the wealth of the nation’s 20 wealthiest real estate tycoons — a list that includes six Californians: Donald Bren, John Sobrato, Edward Roski Jr., Rick Caruso, Donald Sterling and Jay Paul.
Collectively, they’re worth $97 billion. If you think that’s a lot of money, well, it’s not in rich-folk math these days.
A roaring-hot stock market, especially for technology investments, means these 20 fortunes combined only tie Facebook founder Mark Zuckerberg for the globe’s fifthlargest individual fortune, by Forbes tally. Yes, tied!
The dissection
Commercial real estate — where most property wealth lies — seems to have avoided a hefty pandemic wallop.
Various bits of government aid, cheap financing and some patience gave smart property owners enough flexibility to emerge from the coronavirus economy with only a few bruises.
Look at these 20 real estate tycoons as kind of an index for commercial properties. Their assets include everything from office parks to landmark skyscrapers; apartments for the working class and the wealthy; and shopping hubs from strip centers to iconic malls.
The 20 tycoons’ $97 billion in combined net worth is actually up $13 billion, or 16%, since the spring of 2020 when coronavirus-related lockdowns throttled the economy.
It’s an impressive performance if you think back to when the pandemic first was brewing and recall that most landlords and property owners feared the worst — everything from trouble filling units and collecting rents to meltdowns in financial and lending markets.
Those anxieties were why the top 20’s real estate total fortunes were cut to $84 billion from $100 billion — a 15% drop — in the year that ended in spring 2020.
It leaves a $97 billion question: Who’s too rich?
Yes, Zuckerberg’s wealth — tied to his company’s stock market value — was in similar straits a year ago. Because stock investors had no pandemic experience, “sell” was most traders’ knee-jerk reaction.
Zuckerberg
Bren Just like the real estate crowd, Zuckerberg’s wealth dropped: a $7 billion decline — or 12% — in the year ending as the pandemic era started.
But stocks, especially those in technology niches, didn’t stay down for long.
In the past year, the Facebook CEO’s wealth zoomed 77% higher — that’s $42 billion if you’re counting — to tie the value of the 20 real estate tycoons’ collective riches.
That stock surge put Zuckerberg in fifth place among the world’s wealthiest behind Amazon’s Jeff Bezos ($177 billion), Tesla’s Elon Musk ($151 billion), Bernard Arnault of the LVMH retail fortune from France ($150 billion) and Microsoft cofounder Bill Gates ($124 billion).
How bubbly?
On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … TWO BUBBLES for commercial real estate and FIVE BUBBLES for tech stocks.
Ponder the scope of these seemingly extravagant tech stock market bounties to, say, just the U.S. real estate’s largest individual fortune.
Donald Bren, the 88-year-old owner of real estate giant Irvine Co., again is ranked by Forbes as the nation’s wealthiest individual property owner. Bren’s $15.3 billion empire based out of Newport Beach was ranked as the world’s sixth-largest real estate fortune and was No. 132 on the Forbes list of overall global billionaires. Or 127 spots behind Zuckerberg.
But it has been a stagnant two years for Bren, by Forbes’ math. His net worth fell 1% in the past year after falling 5% in the previous 12 months.
Zuckerberg? Just in the past year alone, the stock market essentially added nearly three Bren-sized fortunes to his net worth.