An Investors’ Dream or Just a Mirage?
Ashraf Fahim insists he is not a gambler. Yet when he decided to begin betting on real estate, he headed straight to the high-stakes table in California’s remote desert.
Two years ago, as some experts cautioned that soaring housing prices were creating a market bubble, the Egyptian-born pediatrician borrowed about $400,000 against his Riverside home and began buying dirt -- dirt-cheap.
Fahim concentrated his purchases on an area he felt was undiscovered, a skull-scorching stretch of sagebrush and farmland 20 minutes east of Barstow where, until recently, land could languish on the market for years until it sold.
That was before Fahim and other speculators swooped down on Newberry Springs.
“Sometimes you do things in life and you don’t know why you’re doing it,” said Fahim, 42, who bought several parcels for a few thousand dollars an acre -- a few for just hundreds of dollars an acre. “Even my wife was yelling at me, ‘Why are you buying all of these things?’ I told her I didn’t know. It was just all very cheap.”
As analysts debate whether the real estate slowdown will result in a soft landing or a crash, investors are trolling for bargains -- and a big score -- in the middle of nowhere. One such hot spot is Newberry Springs, a vast, unincorporated area in the Mojave Desert that’s home to just a few thousand people spread out in homes on large parcels.
Last year, $15.6 million in real estate sold in the ZIP Code encompassing much of Newberry Springs, nearly seven times the amount in 2000, according to DataQuick Information Systems in La Jolla. Figures through July are on pace with last year.
Buyers run the gamut, and include small developers betting that urban refugees will buy luxury homes on private man-made lakes, and a dentist whose license revocation and bankruptcy inspired him to put a down payment on a chunk of desolation. There Boulos Maksemous, who’s licensed to practice dentistry again, intends to build the Dream Pyramid, a hotel modeled after Las Vegas’ Luxor resort.
“God meant me to have this land,” said Maksemous, who sought investors this year through a newspaper ad (he didn’t get any) and is pursuing a franchise deal with a hotel chain (he hasn’t heard back). “I need to build the hotel. It will be bigger and better than the one in Las Vegas.”
More common are people like Fahim, small investors who lament not jumping into the market when Riverside was inexpensive, Fontana was a bargain and Barstow was considered too far east.
“They’re looking for hidden gems, overlooked things,” said Patrick Duffy, an analyst with Hanley Wood Market Intelligence, a Costa Mesa-based real estate consulting firm. “It seems speculative. But God bless them, because that’s how people make money.”
Or lose it. The desert has a history of real estate dreams evaporating in the blazing sun. California City, incorporated 41 years ago north of Edwards Air Force Base as the state’s third-largest city in size, is home to about 12,000 people today. In the 1950s, “waterfront property” on the Salton Sea was hyped by developers until flooding and the stench of algae blooms and fish kills in the heavily saline lake sunk the boom.
Newberry Springs has seen its share of get-rich-quick dreams too. Worm farm scams. Chinchilla farm ventures. Ostrich farm schemes.
“We’re gullible out here, I guess,” said Fred Stearn, a former New York City police officer who moved to the Mojave for its clean air and has been brokering land in Newberry Springs for a quarter-century.
In the face of Southern California’s cooling housing market, investors cite a litany of reasons Newberry Springs is poised to attract national home builders who will significantly drive up the value of their mostly vacant land. Among them: job growth and planned Indian casinos in Barstow, a new water pipeline to the California Aqueduct and far-from-certain plans for a high-speed train linking Las Vegas and Orange County.
Ironically, the high-speed train idea helped fuel Newberry Springs’ last real estate boom, in the 1980s, said Joseph W. Brady, a high desert land broker whose company tracks the region’s economy. When the bust came in 1990s, the value of outlying vacant land plunged about 80%.
Brady worries it’s happening again.
“Why would anybody in their right mind build out there now? ... It’s almost on the edge of the Earth,” Brady said. He believes big home builders may look to such places as Newberry Springs -- someday, but not in this uncertain market.
Berni Ediga insists he is not a gambler. Yet after watching his brother get rich in real estate, he started thinking: Why not me?
“Real estate always goes up,” said Ediga, 34, a Carlsbad business analyst who bought property in Arizona, Washington state and his native India. Last year, Newberry Springs caught his attention.
At first he was skeptical. “It’s pretty remote country. It’s, like, ‘Wow, who lives there?’ ” But after seeing prices soar in the months since his first purchase, he’s looking to buy more.
Although local brokers estimate that prices have doubled or tripled in the last 20 months, the far-out desert remains inexpensive by California standards. An acre in Fontana can run $700,000. In Newberry Springs, it’s going for the price of a used car.
“The developers haven’t hit yet. Right now, it’s the investors who are scarfing up the land, and we’re just holding it and waiting,” said Wesley Sperry, who grew up in Newberry Springs and has made enough money on desert land deals to retire at 43. “People will eventually come this way.”
Sperry, who dropped out of high school, taught himself the real estate game. First rule: Play with borrowed money.
Fresh out of the Army in the 1980s, he borrowed money for his first property and built a home. He borrowed off the home, scrimped, saved, borrowed more and developed two gas station/mini-marts on Interstate 40. In the 1990s, he sold them and reinvested in other property.
Among his holdings are rental homes, the land where the local post office sits and 30 vacant tracts in Newberry Springs, according to public documents.
“Ever play Monopoly? It’s like that. But it ain’t that simple,” said Sperry, who lives in his original home but owns a BMW, a Mercedes-Benz and a Cadillac Escalade and logs a lot of time traveling with his family in a 40-foot-long recreational vehicle to escape the Mojave heat.
Local real estate broker Sandra Brittian says she suspected the expanding edge of California’s real estate boom was finally reaching Newberry Springs when she saw Sperry buying.
The market took off soon after, in January 2005, after 15 years in the dumps. Since then, by Stearn’s count, about 500 parcels have sold.
It was as sudden as flipping a light switch.
“I couldn’t believe it,” Brittian said. “I had land that had been sitting on the market for a long time, and people started calling me and just grabbed it. Now it’s difficult to keep [properties] on the market. They’re gone as soon as they’re listed.”
Five acres with a mobile home that Brittian sold to a Washington state woman sight unseen in late 2004 for $78,000 recently fetched $180,000. Many clients pay cash for their slice of Newberry and negotiate via phone, fax and e-mail. Brittian never meets them.
“They all come into the office with cash. They’re insulted if you bring up terms,” said Stearn, who maintains a giant blackboard in front of his office on old Route 66 on which he prints a menu of offerings.
Ashraf Fahim insists he is in Newberry Springs for the long haul. Still, he recently tried to sell one of his holdings near where the owners of a failed water park want to build 1,400 senior housing units. The project has yet to win county approval, and its financing is “convoluted” and “confusing” and involves a lawsuit settlement between former partners in the water park, said Spike Lynch, the developers’ government coordinator.
Regardless, the proposal has sparked rumors -- untrue, Lynch says -- that a nationally known home builder is close to paying $25 million for 3,000 nearby acres the developers have an option on.
Believing he could cash in, Fahim listed his parcel for $4 million -- 57 times what he paid less than two years ago. He didn’t get a nibble and pulled it off the market.
Meanwhile, Fahim’s home equity loan is burning a hole in his checkbook, requiring him to work extra hours. But he takes solace knowing he placed each purchase offer on the altar of his church and prayed before buying “to see if there’s something from God or not.”
“It could be a stupid thing. It could be a good thing,” he said. “When you have faith, you don’t get nervous.”
