REAL ESTATE NEWS

Capital is migrating from California’s coastal metros to growth markets in the state, specifically to Riverside and the Inland Empire, driven by population inflows, infrastructure expansion and a more attractive yield, according to BridgeInvest.

Danny Alvarez, vice president of credit originations for the firm, told GlobeSt.com that a clear story is emerging because inland cities offer lower entry costs, strong job growth, as well as resilient multifamily and retail demand, differentiating them from higher-cost, saturated coastal metro areas.

According to a recent study by PwC and the Urban Land Institute, 75% of U.S. population growth in the current decade will come from immigration. One-third of them settle in Florida (14%), California (13%), or Texas (7%).

In fact, specific inland locations in California are experiencing more in-migration than expected, including Riverside-San Bernardino and Sacramento. Furthermore, the U.S. working-age population is projected to expand by more than 10 million in the next decade, fueling demand for commercial real estate.

The South, which includes several counties in southern California, now represents the demographic and economic engine of the U.S. with over 3.2 million people added (1.1%) across metros. Employers are following talent migration, creating durable demand for industrial, office-flex and multifamily assets inland.

Contrary to general sentiment regarding outward migration, California’s population grew by 108,000 in 2024, reaching 39.5 million as of January 2025. If the Golden State were a country, it would rank as the world’s fourth-largest economy, according to the IMF. As of June 2025, California is home to 58 Fortune 500 companies.

Multifamily, BFR, Retail: Most Attractive Asset Classes

Multifamily, build-for-rent and retail are attracting the most significant inflow of capital from lenders and investors as they look beyond California’s saturated coastal metros, according to Alvarez.

California’s inland markets combine population growth, infrastructure investment and affordability, driving both demand and durable cash flows, he said.

“In the last 90 days alone, we have seen a townhouse construction opportunity, multifamily financing, and two grocery-anchored retail centers with credit tenancy in the Riverside market alone,” Alvarez said.

“At BridgeInvest, we are focused on lending opportunities in these growth corridors—markets where pricing dislocation and limited bank liquidity allow for compelling senior-secured lending.”

One example is its recent $22.4 million Park Sierra Center financing, which has "stable tenancy anchored by a grocer and institutional neighbors, a strong local sponsor group, and a conservative debt basis in a market with asymmetrical upside via increased rents in the next tenancy roll cycle,” according to Alvarez.

“Retail and multifamily tend to be the strongest asset classes in terms of performance and liquidity, while industrial (due to elevated post-COVID supply and tariff-related disturbances) and office (suburban in nature) tend to be more difficult and opportunities not as frequent.”

For example, the Inland Empire industrial market has a vacancy rate of 8.5% (higher than the national average of 8.0%), compared to 6.4% in Los Angeles and 6.6% in Orange County.

California’s notorious high cost of living along the coastal markets will continue to fuel an inward migration to inland markets, which are typically more affordable, according to Alvarez.

“While rising construction costs and high base rates constrain new development, fundamentals remain strong,” he said. “Household formation rates, demographic momentum, and structural housing shortages are sustaining occupancy levels across the US."

According to Yardi data, approximately 22% of multifamily projects scheduled for 2025 delivery have been delayed or resized, mainly due to budgetary adjustments rather than structural financing failures or weak leasing projections.

MSC Industrial CRE reported that multifamily transaction volume nationally rebounded by 12% in H1 2025 compared to the previous half-year.

“This highlights the sector’s ability to attract capital amid broader market caution, bolstered by its defensive demand profile and long-term demographic tailwinds,” Alvarez said.

The Inland Empire’s retail market vacancy has widened by more than 100 basis points due to an unusually high number of closed furniture stores, department stores and bankrupt retailers. This includes Big Lots, 99 Cents Only and Rite Aid, according to CoStar.

Despite a slightly elevated current availability rate of 7%, which has inched higher in the past few quarters, it remains well inside the 2015-2020 average of almost 9%.

“A tightening availability rate, strong post-COVID rent growth average of 3.8%, and projected immigration growth are some of the many reasons we remain bullish in the retail sector in inland markets,” he said.

Private Lenders Stepping in for Inland Corridors

Private lenders are increasingly funding projects in high-growth inland corridors, filling the void left by traditional banks that have retreated from CRE lending, Alvarez said.

“Since 2023, banks have tightened lending standards and reduced their exposure to CRE, creating an opening for non-bank lenders to become a key source of capital,” Alvarez said.

“Regional and community banks have historically dominated inland corridor lending but are now ceding market share to non-bank lenders. The concentration of maturing CRE loans and the high-interest rate environment further fuel demand for alternative financing solutions.”

Based on data from Trepp and the Federal Reserve, over $3 trillion of CRE debt will mature in the next five years, and banks hold 40% of these loans.

Moreover, CRE lending comprises a significant share of banks’ loan portfolios, especially among community and regional institutions.

Furthermore, “most of the loss-absorbing capital held by small banks is reserved for potential losses generated by CRE portfolios,” Alvarez explained.

Therefore, regional banks remain vulnerable due to their exposure to distressed CRE debt, particularly in office properties, where the special servicing rate has hit a 25-year high, according to Trepp figures.

“Private lenders and debt funds are filling the gap, capitalizing on banks’ retreat from CRE lending,” Alvarez said.

“Structural supply-and-demand imbalances reinforce our view. While large-cap credit markets have seen significant capital inflows, middle-market CRE credit remains undersupplied. Banks have retrenched from development, refinancing, workouts, and recapitalizations, leaving a gap that, in our view, private credit platforms like BridgeInvest’s are well-positioned to fill."

Source: GlobeSt/ALM