Inland Empire is showing early stirrings of recovery

Jim Lytle gunned his silver BMW past the boarded-up model homes and the faded red flags of an abandoned sales office, then steered into a grid of empty streets and yellowed grass.

Millions of dollars were spent to turn farmland into housing tracts. Lots were graded, roads were paved, sewers installed. The houses? They will come, Lytle promises, right here on these acres and acres of weed-strewn fields.

"This is a broken subdivision, which is obvious by looking at the ground," said Lytle, whose real estate investment firm has been snapping up land in Winchester and throughout Riverside County. "But I still believe the American dream is alive and well in homeownership."

Few places have been as devastated by the Great Recession as the Inland Empire, a region of 4 million people encompassing Riverside and San Bernardino counties. Unemployment has tripled since 2006. Home values have plunged 56% in Riverside County and 60% in San Bernardino County. Nearly 12,500 foreclosure notices were filed in the three months that ended Sept. 30.

Yet amid the stillborn subdivisions, abandoned storefronts and crowded unemployment offices, there are early stirrings of recovery.

Foreign companies are setting up manufacturing centers, attracted by cheap land and a weak dollar. Shoppers are trickling back to malls, with the latest figures from the state showing both San Bernardino and Riverside counties outpacing Los Angeles County in growth of taxable sales.

The region's unemployment rate fell to 13.4% in September, down from 14.1% in August, the state reported Friday. The Inland Empire added a net 4,700 jobs in a month when the state overall gained 11,800 positions.

Lytle's company, Rancon Group, has bought 3,000 residential lots in Riverside County over the last three years. The plan is to sell them off to home builders as the housing market recovers, which Lytle predicts will happen by 2013.

"We really believe we're at the bottom," he said. "We're already seeing pockets of strength in some of these locations."

Those signs of recovery, while spotty, are tied to the same factor that powered the Inland Empire's rapid growth: location.

From 2000 to 2010, the region's population increased three times as fast as California overall, much of that driven by home buyers priced out of neighboring Los Angeles, Orange and San Diego counties.

Location has also made the Inland Empire a hub for manufacturers, warehouse operations and cargo companies. The region boasts two major interstates, commercial airports including Ontario International, and a major rail line with access to the ports of Los Angeles and Long Beach.

"We have a great transportation system, our freeways are not all plugged up, everything is a little bit less expensive as compared to San Diego or Orange County," said Roy Paulson, whose Temecula company, Paulson Manufacturing Corp., makes protective eyewear. "We just need to get more businesses here to round it out."

New businesses, some from Asia, are coming into the Inland Empire, albeit slowly.

In January, Wakunaga of America, a Japanese-owned company that makes garlic tablets and other health supplements, opened a 53,000-square-foot factory in the busy industrial area of Mira Loma.

Tisha Kholoud, who was out of work for more than a year after losing her job at a Borders warehouse, was one of 40 people the company has hired.

In a pristine factory room, Kholoud, wearing a face mask and hairnet, checked boxes for expiration dates as a machine methodically dropped pills into glass bottles and sealed them.

"I was very worried, knowing what the unemployment rate was," said the 43-year old Riverside resident. "I'm very glad to be here."

Attracting foreign investment is becoming a key part of the Inland Empire's strategy to create jobs. Riverside County created an Office of Foreign Trade in 2009 to boost exports and recruit businesses from overseas.

The Office of Foreign Trade has also created 40 loan centers under the federal government's EB-5 immigrant visa program, in which foreign investors can qualify for a U.S. visa by making investments that create jobs. The office has also helped expand four federally approved foreign trade zones, which waive import duties on certain products used in manufacturing.

Tom Freeman, the county's foreign trade commissioner, has signed bilateral trade deals between Riverside County and both Croatia and Japan, aiming to strengthen business ties between the regions.

Colorful flags of foreign nations surround his desk in Riverside. Gifts from visiting trade emissaries are showcased in the lobby: a mother-of-pearl comb from China, a fan from Japan, a book about Chopin from Poland.

No opportunity is too small; he's currently trying to get Riverside workers jobs designing golf courses in Croatia.

"If we don't have foreign direct investment, whether it comes from Israel, Japan or South Korea, our unemployment picture is significantly higher," Freeman said.

His efforts seem to be paying off. A Chinese investor breathed life into the MVP RV Inc. recreational vehicle factory in Riverside, which had been idled since 2009. Canadian investors bought up a bankrupt golf course in Desert Hot Springs and are planning to hire construction workers to build houses and condos. This month, investors from Shanghai bought condo complexes in Hemet and Perris.

U.S. companies are also jumping back in. Watson Land Co. broke ground in March on a 616,000-square-foot industrial warehouse in Redlands, the first speculative industrial building started in the Inland Empire since 2009. In August, a group of investors bought a 410,000-square-foot warehouse in Fontana for $25 million.

The Inland Empire's vacancy rate for industrial buildings fell to 8.1% for the three months that ended Sept. 30, down from 11.7% for the same period last year, according to brokerage Cushman & Wakefield.

Cheap land is one draw. Hollywood Ribbon Industries Inc. recently moved from East L.A. to Rancho Cucamonga, and company President James Scott noted that some of his employees are picking up and moving to the Inland Empire too.

"We moved out to the Inland Empire for cheaper rates and nicer buildings," Scott said. "We're incredibly happy with our move."

Such optimism is harder to find on the forlorn streets of Victorville, an isolated desert outpost about 100 miles from the beaches of Santa Monica.

Here, it's hard to drive a block in the city's main streets without seeing a sign on a commercial building screaming "Available" or "For Lease."

On the main drag of the old town, most stores are boarded up. Colorful graffiti is scrawled across the windows of an empty Chinese restaurant, near a charred hulk of a building with signs proclaiming "New Beginnings" in the windows.

Carmen Garcia, the owner of Aries Beauty Salon, fears she may be forced to close her business.

"There's no people or nothing here," she said.

Except for vandals, that is. Notices posted on foreclosed homes offer $500 rewards for help stemming a "tremendous epidemic of theft" of stoves and refrigerators.

On the west side, Three Flags Highway is littered with real estate signs covered in graffiti. A billboard promises a new Target coming soon. It isn't, and neither is the Lowe's once planned for the vacant lot across the street.

Garish billboards hawking cheap foreclosed homes make it seem as if the entire town is having a fire sale. The makers of chain-link fences and "keep out" signs, however, appear to be thriving.

"People in Los Angeles, they say it's getting a little better, but here it isn't, because there isn't any work," said Maria Aboytes, who runs a taco shop in an otherwise empty strip mall in nearby Apple Valley.

The desperation in these high-desert towns suggests that the Inland Empire will have a mottled recovery. The remote "exurbs" drew people as housing prices skyrocketed. With home values depressed, fewer people are willing to put up with epic commutes.

"Victorville is the poster child of the overhang," said Gerd-Ulf Krueger, principal economist of HousingEcon.com. "Nobody wants to go to Victorville."

La Quinta, between Palm Springs and the Salton Sea, faces a similar challenge.

Developers built hundreds of homes there, aiming for affluent baby boomers looking to retire and play golf. More than 30 housing projects have stalled. Long fences covered in green cloth hide the developments, where empty streets stretch toward the mountains and end in half-built homes.

"We have several projects of various sizes and densities that are either partially constructed or haven't started at all," said Les Johnson, La Quinta's planning director.

Many of these vacant homes are being rented out; home values in the Inland Empire, while depressed, haven't fallen so low that it makes more sense to raze them, which has happened elsewhere in the country. Riverside's median home price is $191,000 and San Bernardino's is $150,000, according to DataQuick, compared with half that amount in Detroit.

But the new rental culture — absentee buyers can account for up to a third of all new home purchases in any given month — carries problems of its own.

Slapped together quickly during the boom, many of the homes are poorly built, said Christopher Leinberger, an urban planning analyst at the Brookings Institution. Landlords have little incentive to spend money on costly repairs and maintenance, he noted, especially if they can barely cover their costs.

Tammy Smith said her landlord tells her to pay for her own repairs to her spacious Victorville home; if she doesn't like it, she would have to move, as she has three times in the last five years.

On a recent weekday, Smith and her neighbor Lisa Johnson, both 40, sat in camping chairs watching the late afternoon sun cast gold light over their neighborhood of tan homes and neat lawns. Across the street, a small boy giggled as he sprayed his parents — also renters — with a water hose. Children biked down the street, and Smith's daughter looked at them wistfully as she asked to be excused from homework duties.

It seemed a peaceful scene of Americana, but Johnson and Smith are frustrated. Both have lived here for more than five years, and neither has been able to find work. They're sick of sending off job applications and hearing nothing back, tired of seeing signs promising developments that never materialize.

Johnson, who drove a bus for 12 years, said she has started applying to fast-food restaurants, to no avail. She's thinking of moving to Texas, where she has family.

"They need to bring jobs up here," said Johnson, whose grown son recently returned from Texas, where he had a job, but hasn't been able to find one in Victorville. "They need to do something for our kids."

Unemployment is a national problem, but it's particularly acute in the Inland Empire, which was especially dependent on the construction industry. The region lost 72,000 construction and 13,000 financial activities jobs since 2006.

Economists say the Inland Empire won't see a strong recovery until the housing market recovers. That leaves the region's fate, in part, in the hands of people such as Mike Sai and Yuki Yano.

The young couple were among dozens who spent a recent Sunday morning touring model homes at Corona's Orchard Glen development. They admired the granite countertops and the oak dining table, the stainless-steel appliances and the bedrooms decorated with bird cages and plump bedspreads.

"This is new construction, and it's affordable," said Sai, 30. The homes aren't cheap at $500,000, but Sai figures that's still about $300,000 less than he would have to pay in the Orange County town of Brea, about 25 miles away.

That relative affordability — for homes and for commercial space — will be key to the Inland Empire's recovery. It's what attracted Lytle, the real estate investor, Wakunaga, the Japanese company, and thousands of home buyers such as Sai and Yano.

As Southern California's population continues to increase, it seems only natural that housing demand — and the jobs that go with it — will return, even to the epicenter of the real estate bust.

It's just a question of when.

"I do think that ultimately, this will all get cleaned up," said Chris Thornberg of Beacon Economics, who was among the first to predict the housing bust. "The cycle is being drawn out, but Southern California is moving again, and that's going to have an impact."

Developer Glen Brayshaw is betting on it. He bought a golf course in Desert Hot Springs out of bankruptcy and plans to build 900 homes and 1,500 condos on the site, which he is already marketing to fellow Canadians as second homes to escape the frigid winters.

"You guys have the most coveted commodity on Earth — climate and lifestyle," Brayshaw said. "I don't know a better combination."

alana.semuels@latimes.com

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