Region made progress in 2013 but recovery still incomplete

The housing market roared back to life – for a while, anyway – and unemployment fell to levels not seen in five years. Plans for a new NBA arena sparked a downtown real estate boomlet, and investors worked to turn the sad, shuttered Campbell Soup Co. factory into an industrial park. State government churned out budget surpluses instead of deficits, and added to its payrolls.

Sacramento’s economy showed unmistakable signs of perking up in 2013. But there were also nagging reminders that the recovery was far from complete.

Despite two straight years of decent job growth, the region had recaptured barely 30 percent of the jobs lost during the recession. Travel continued to slump at Sacramento International Airport, prompting budget cuts as officials wrestled with a $1 billion debt left from the construction of the new Terminal B. The long-awaited redevelopment of a key downtown block was left in limbo after a multimillion-dollar subsidy was blocked by the state.

Still, most economists believe the region is gaining strength as the year comes to a close. They say 2014 will be better than 2013, although it won’t exactly be a boom.

“We’re not forecasting any blockbuster year,” said economist Jeff Michael of the University of the Pacific. But “the prospects for growth are pretty good in 2014.”

As always, much will depend on the strength of the housing market. During the first half of 2013, the market pulled out of its five-year tailspin faster than anyone predicted. The supply of available homes shriveled to all-time lows. Homebuyers, trying to take advantage of historically low interest rates, struggled to compete for properties against a new horde of investors that included the Wall Street hedge fund Blackstone.

At midyear, prices were up nearly 30 percent compared with 2012 – and about 50 percent from the trough two years ago. It was a shot in the arm for the whole economy, raising homeowners’ equity while providing hope for a construction industry that employs half as many workers as it did during the boom.

“It shuts off a lot of the foreclosure pipeline,” Michael said. “It sets the stage for a healthier market, for improved consumer spending.”

And then, as summer began, the carousel stopped.

Higher prices shooed away many of the investors. Almost out of nowhere, the inventory of homes for sale doubled. For the second half of 2013, the median sale price in Sacramento County barely moved from the $240,000 level, according to market tracker DataQuick. That compared with a peak of $374,000 in 2005.

Experts called it a breather, not the end of the comeback. Pat Shea, president of Lyon Real Estate in Sacramento, predicted a “more stable appreciation” in prices in 2014 – something in the 5 percent to 10 percent range.

Of course, housing doesn’t operate in a vacuum; real estate experts said a steady increase in job creation is needed to nurse the market back to more complete health. On that score, there is reason to be cautiously optimistic.

The Sacramento region gained 12,400 jobs in the 12 months ending in November, a respectable but not spectacular growth rate of 1.5 percent. Unemployment fell to 8 percent – well below the 12.9 percent peak recorded in early 2010.

Much of the job growth in the past year has come in health care, which was barely affected by the recession anyway. There’s also been plenty of hiring in the restaurant business and other service fields. Retailers, notably, brought on more employees for this holiday season than they have in several years.

Perhaps most importantly, the region’s single largest employer – state government – is growing. Employment is up 3.7 percent from a year ago, a gain of 3,000 jobs. “Furlough Fridays” are a thing of the past, and chronic deficits have given way to surpluses.

As job growth continues, the region’s once-mighty home building industry is beginning to gear up again. Builders began preparing land in 2013, and construction resumed, in baby steps, on new-home communities in the suburbs.

In one fell swoop, the New Home Co. bought 431 acres in the Folsom area, room enough for 900 houses. Prep work is expected to begin in 2014, with construction following a year later.

Much of the home building focus in 2014 and 2015 will be in Placer and El Dorado counties, markets that proved popular during the previous boom to transplants from the Bay Area.

The Bay Area is likely to be heard from yet again. Until now, California’s economic recovery has been a tale of two states – vibrant growth on the coast, less so inland. That’s beginning to change. As housing prices soar into the stratosphere in San Francisco and Silicon Valley, economists and real estate agents say people and jobs will resume their migration into Sacramento and other parts of the Central Valley, following the same route they traced during the boom.

“Eventually the pressure from the coast ... will accrue to the inland economies,” said Chris Thornberg of Beacon Economics consulting in Los Angeles. “The inland economies are still behind, but as the coast gets hotter and hotter, growth will move inland.”

Right now, some of the Sacramento area’s job growth is coming from overseas. In August, Japanese seasoning firm Nippon Shokken opened a plant in West Sacramento’s Southport Business Park, its first U.S. factory. The plant can employ up to 400 workers.

Just two months later, Japanese rice miller Shinmei Co. Ltd. announced it will build a $10 million plant and U.S. headquarters at the Southport site.

The area’s industrial sector gained ground on other fronts. As the year came to a close, Los Angeles investment firm Hackman Capital Partners bought the Campbell Soup plant, which closed in July. Hackman’s plan is to convert the sprawling complex into a multitenant industrial park.

While the full build-out will likely take five years, community leaders hailed the news. Campbell Soup had been a symbol of the region’s food-processing industry and a source of hundreds of good blue-collar jobs in the hardscrabble Franklin Boulevard neighborhood of south Sacramento.

The company relocated production to plants in other states, and the closure renewed the age-old debate over California’s business climate and the cost of doing business in the state.

The debate was further intensified when Texas Gov. Rick Perry made a high-profile recruiting mission to California in an effort to lure jobs away.

Although California Gov. Jerry Brown famously dismissed the Perry visit as “barely a fart,” there was no denying that Texas’ low-cost business climate was attractive to some companies. Two Roseville technology companies moved their headquarters to Texas in 2013 – Revionics Inc. and Daegis Inc.

At the same time, many community leaders said they believe Sacramento is starting to come into its own as an entrepreneurial hub.

The green-tech sector continues to show promise, and Davis biotech company Marrone Bio Innovations raised $57 million in an initial public stock offering. Remarkably, it was the first Sacramento area IPO in seven years.

Another homegrown tech firm, RagingWire Data Centers, agreed to sell an 80 percent stake in the company to Japanese conglomerate NTT Communications. RagingWire officials said the $350 million deal will translate into a huge infusion of capital to help the Sacramento company grow.

Richard Rich, a Sacramento real estate investor, said the region is on the verge of a golden era of “indigenous growth” led by entrepreneurs in green-tech and other industries.

“There are a number of companies that are incubating right now,” Rich said.

Rich is betting some of them will choose to locate downtown. His company, Mosaic Development, recently bought the Fruit Building, a 10-story office building adjacent to Downtown Plaza.

The building is just 40 percent occupied, but Rich believes that will improve as the recovery gathers more steam and one of the biggest development projects in Sacramento history takes shape – the conversion of Downtown Plaza into the new $448 million arena for the Sacramento Kings.

Rich isn’t the only real estate investor excited about the arena. Sutter Capital Group purchased the historic Hall of Justice building just north of Downtown Plaza, with an eye toward converting the moribund office building into high-end, loft-style apartments.

Construction on the arena could begin this summer, with completion set for 2016. The project will include converting much of the rest of Downtown Plaza into an entertainment complex much like a miniature version of L.A. Live, with apartments, offices and retail.

Of course, the arena isn’t a sure thing. Sacramento Taxpayers Opposed to Pork, a group fighting the proposed $258 million public subsidy, just submitted 34,000 signatures in an effort to force a public vote in June on the subsidy. Elections officials said they’ll know in late January whether the group obtained enough valid signatures – 22,000 – to place the issue on the ballot.

Another downtown project, the long-awaited makeover of the 700 block of K Street, was put on hold in September after state officials said the city couldn’t hand the developers $3.6 million in subsidies. The state’s ruling stemmed from the 2011 law prohibiting local governments from diverting property tax revenue for redevelopment.