Investment Opportunities for California's I-5 Corridor

Midway between Portland and Los Angeles lie two cities that cater to travelers and truckers on the busy I-5 Corridor, as well as supplying nut, fruit, and dairy products to a hungry world. The location is attracting fresh interest from investors and urban exiles who desire a lower cost small town environment that’s friendly while still providing ample space between neighbors. 

Corning, the Olive Capital, falls in the sphere of both Red Bluff and Chico labor markets. Just south of the city limits is the expansive Rolling Hills Casino on sovereign tribal land. 

Orland, the Queen Bee Capital, has experienced rapid growth as a housing shortage in nearby Butte County, exacerbated by the 2018 Camp Fire, pushes employees farther out.

With quality agricultural products and close access to food processing facilities and distribution channels, this region is perfectly suited to focus on providing value-added food products to serve both regional and global markets.

Don Schjeldahl, Site Selection Specialist with DSG Advisors

While Corning’s median home sales price jumped from $146,000 (Nov. 2018) to $300,000 (Jan. 2020) these prices remain substantially lower than most surrounding communities, making Corning a competitive alternative for young families in Northern California. By 2025, Corning’s population is expected to grow to 7,953. This represents an ­annual growth rate of 0.48% from 2020.

The graphic below shows the Corning commute workforce. 80% of employees within the City of Corning live outside the city limits, while 85% live within Corning city limits but work outside the City. 20% of residents work and reside in the City of Corning.

Leading commodities for gross value of agriculture production by County, 2017

Following the Camp Fire in Butte County (Nov. 2018), Orland experienced a spike in population and home sales. The population grew 4.24% from 2018 to 2019 compared to 1.1% growth the year before. The median home sales price jumped from $241,250 (Nov. 2018) to $355,000 (Jan. 2020). By 2025, Orland’s population is expected to grow to 8,690. This represents annual growth of 0.42% from 2020. 

The graphic below shows the Orland commute workforce. 69% of employees within the City of Orland live outside the city limits, while 85% live within Orland city limits but work outside the City. 31% of residents work and reside in the City of Orland.

Leading commodities for gross value of agricultural production by County, 2020.

The single-family housing stock in both Corning and Orland is generally comprised of older, smaller units. Based on sales over the last year, homes in Orland average 1,500 square feet while homes in Corning average just over 1,400 square feet. In both markets, the average home was built in the early 1970s. Despite a demand for new, move-up product, there has been very little construction.  Over the last 10-years new single-family building permits have averaged 24 units per year in Orland and 9 units per year in Corning.  New construction has been constrained by a combination of expensive infrastructure costs to build in the market area and the attractiveness of Chico to move-up buyers.

The median sales prices for homes in Orland is $301,000, as of July 2020. In March 2020, the median home price was $339,000. The median home price in Corning was $245,000 in July 2020 (Realtor.com, August 2020). KMA collected sales data for homes sold between January 2019 and August 2020 in either Orland or Corning. The chart below shows the size of the homes and the recorded sales prices by City.

The limited number of newly constructed homes have been relatively small, in the range of 1,500 square feet and priced between $250,00 and $350,000. This product type is attractively priced to serve entry-level home buyers throughout the region, including buyers that are priced-out of the Chico area.  Larger homes are in the $400,000 to $500,000 range, with a few very large homes above that. To supplement the limited market data, KMA interviewed local real estate brokers. One realtor estimated that a new home in Orland in the 1,500 square foot size range would sell for approximately $225 - $235 per square foot. A second estimated that a four-bedroom home in the 2,000 square foot range would sell for $400,000 to $425,000.  Given the lack of new product for move-up buyers, it is estimated that quality, well-appointed homes in the 1,900 to 2,000 square foot range would be well received in the marketplace and could achieve prices in the $400,000 to $425,000 range.  

There is a significant shortfall of rental units throughout Glenn County, including Orland and Corning. The apartment market in Orland has very limited inventory and there has been no new market rate multi-family construction recently.  The shortage of rental units has been further exacerbated by the Camp Fire, which displaced up to 56,000 people, with 20,000 temporarily relocating to Chico. Chico does not have a sufficient supply of housing to provide permanent housing for fire victims and these displaced residents represent a significant source of demand for new apartment construction in Orland and Corning.  

A recent housing study conducted for Glenn County found a 0% vacancy rate for apartments in Orland, with a significant increase in demand from families displaced by the Camp Fire (Glenn County Housing Study, January 2020).  Published asking rent data is very limited, but data that is available indicates that the rent for two-bedroom units is in the range of $1.00 per square foot. New rental units would be expected to rent for more than the current average, which reflects older units.

The demand for rental units in Corning is also strong with limited inventory and rents for two-bedroom units ranging from a low of $.83 per square foot to $1.23 per square foot. While there is very little vacancy and demand is strong, no market rate apartments have been developed recently in Corning. This is due to the high cost of development relative to supported market rents. 

In summary, there is strong market demand for new single- family and multi-family residential development.  The core sectors of demand are:  

• Entry-level home buyers throughout the three-county region who are seeking homes that are affordable relative to the price points of homes in Chico;
• Existing homeowners who are looking to move-up to larger homes with quality fixtures and finishes;
• The region’s workforce who need moderately priced and affordable rental apartments; and
• Residents and employees displaced by the Camp Fire who need permanent affordable rental housing.

Current retail rents in the area are in the range of $1.20 - $1.25 per square foot, according to input from active commercial brokers. This range was confirmed by published CoStar data for Corning and Orland retail rents, which suggested that rents are in the $1.00 - $1.33 range depending on quality. Prime retail sites at I-5 interchanges command higher rents. Overall, the retail businesses in Corning and Orland receive significant support from customers who reside outside of the two communities. Consistent with communities’ presence on Interstate 5, the largest “import” retail groups are motor vehicle and parts dealers, gasoline stations, and food and beverage stores. Industries in which sales from Corning and Orland residents are being captured by/”leaked to” other cities include: home furnishings, clothing stores, general merchandise, electronics and appliances.

There is strong demand for logistics and warehouse space in the local area, due to its strategic location on I-5. Orland and Corning are within a few hours of the Bay Area and represent the halfway point between Southern California and the Pacific Northwest. In addition, local food producers and manufacturers generate demand for warehouse space. A local broker estimated that dry warehouse space rents for about $0.40 to $0.50 per square foot, while refrigerated warehouse space leases for about $0.60 - $0.70 per square foot. This range was confirmed by the limited market data available. 

Food production and food processing is an active sector in this area. There are several significant agricultural manufacturing businesses in the local area, such as Rumiano Cheese in Willows, Bell Carter Olive Company in Corning, Sierra Nevada Cheese Company in Willows, Sunsweet Dryers in Orland, Olson Meat Company in Orland, and many others. Discussions with local brokers suggest that there may be demand for more development of this type. There is limited rent data available for industrial space in Orland and Corning. CoStar publishes rent data on an annual basis for leasing activity that occurred over the year; the most recent data available is for 2017. The data is summarized below.

The opportunity site selection process first began by searching all available properties listed on the market. Those sites are shown below for both Corning and Orland.

Opportunity Zones (OZ) are a federal program designed to spur community investment by providing tax benefits to investors. (IRS Code Section 1400OZ).

• Deferral – capital gains invested in an OZ Fund do not need to be recognized when the investment is sold or exchanged or until December 31, 2026.
• Reduction – if an investment is made by December 31, 2021, the gain will be reduced by 10%
• Exclusion – after holding an investment in the OZ Fund for at least ten years, disposition of the OZ investment does not result in additional federal income taxes.
• Eligibility for the tax benefit requires the investment be made through a qualified Opportunity Fund―a privately managed investment vehicle organized specifically for and holding at least 90 percent of its assets in an Opportunity Zone.

Secondly, the investment must be derived from a gain in another investment and transferred into an Opportunity Fund within 180 days of realizing the gain.

 Check here  for more tax and Opportunity Zone information at the Federal level.

The State of California has an Opportunity Zone Toolkit linked  here