John Husing, Ph.D. Economics & Politics, Inc.

&Chief Economist, IEEP

Inland Empire Economy

Three Step Growth ProcessBased On Interaction Of:

• Population• Preferences• Dirt• Prices

Why Southern California Population Grows

People Prefer To Live Near The Coast

As a homeowner, would you prefer to move closer to work if it involved a townhouse or condo?

(I-15 & Sr-91 Commuters, 2008)

72.3% No

As a renter, would you prefer to move closer to work if it involved a townhouse or condo? (I-15 & Sr-91 Commuters, 2008)

87.5% NoAnswer stable over 5 years

Lack of Land or Inadequate Zoning Drives Up Coastal Prices Forcing Home Buyers & Renters to Move Inland

$24,000

$189,000 $215,000

$371,000

$239,000 $263,000

$428,000 $454,000

$610,000

San Bernardino Co.Riverside Co. Los Angeles Co. San Diego Co. Orange Co.

Median All Home PriceSan Bernardino County Price Advantage

Source: Dataquick

Exhibit 20.-Home Prices, So. California MarketsMedian Priced New & Existing Home, 2nd Quarter 2013

$191,000$165,000

$247,000

Don’t Build Them & They’ll Come Anyway!

I-210 Delayed For 1980-2007 YearsSan Bernardino County went 900,000 to 2,000,000 people

BUILD FREEWAYS & THEY’LL COME

• People forced to move inland for affordable homes• Population Serving Jobs Only• High Desert & I-215 South are current examples

Stage #1: Rapid Population Growth

Commuting

1,650,384 Total Jobs

1,156,313 Inside IE494,071 Commute Outside County154,845 Between IE Counties339,226 Outside IE

20.6% Commute Outside the IE

Business Prefers The Coastal Counties

Not Enough Land … Industrial Prices Much Lower In Outlying Areas

84.2%

107.2%

156.6%

$0.26$0.33

$0.48

$0.30$0.38

$0.56$0.63

$0.78

Inland Empire Los Angeles Co. Orange Co. San Diego (non-R&D)

Price Per Sq. Ft.Price with 20% Cubic Factor

Difference.

% Difference

nnn=net of taxes, insurance, common area feesSource: CB Richard Ellis

Exhibit 13.-Industrial Space Costs DifferencesSouthern California, Sub-Markets, March 2013

Blue Collar Jobs Important To Outlying Areas

37.9%

Outlying Workers Will Work For Less Not To Commute

0.0%

4.26%2.55%

5.81%

$33,240 $34,656 $34,089 $35,173

Inland Empire San Diego Los Angeles Orange

Weight Median Pay Percent IE Pay Is Lower

Note: Occupations in common weighted by Inland Empire JobsSource: CA Employment Development Department, Occupational Wage Survey, Economics & Politics, Inc. calculations

Exhibit 82.-Median Wage & Salary Percent DifferenceInland Empire vs. Coastal Counties, 2010459 Common Occupations, Under $70,000

Stage 2: Rapid Industrial Growth

Jobs:Housing Balance lmproves

IE Western Edge is today’s best example

Step #3 Higher-End Migration

Upscale Housing

Skilled Workers Migrate InlandFor Better Homes

Condo Living Becomes More Prevalent

32.4%29.0%

25.1%21.9%

8.7%

4.5%

San Diego Orange Ventura Los Angeles Riverside San Bernardino

Source: DataQuick

Exhibit 13.-Condo Sales Share of Home SalesSouthern California Markets, 2008

Higher-End Workers Added

Outlying Workers Will Work For Less Not To Commute

0.0%

7.70% 9.17% 9.22%

$86,806$93,489 $94,768 $94,806

Inland Empire San Diego Los Angeles Orange

Weight Median Pay Percent IE Pay Is Lower

Note: Occupations in common weighted by Inland Empire JobsSource: CA Employment Development Department, Occupational Wage Survey, Economics & Politics, Inc. calculations

Exhibit 98.-Median Wage & Salary Percent DifferenceInland Empire vs. Coastal Counties, 2010138 Common Occupations, $70,000 & Up

Stage 3.- High-End Companies Ultimately Follow Workers

Jobs:Housing Balance Achieved

Southern California Avg. 1.20 Jobs per Occupied Dwelling

Primary Tier

Secondary Tier

Economic Development … Increase The Economic Base!

Current Economic Status & Issues

After Losing 8.74 Million Jobs …U.S. Job Creation Is Crawling Back

Without Loss of-682,000 Government Jobs7,495,000 Growth or 85.8%

26th Largest U.S. State by Population

Ethnic Composition

Relatively Young Population

Share Stopped EducationHigh School or Less

BA or HigherBay Area: 42%Inland Empire: 18%Lake Elsinore: 16%

37.9%

Why Not High End Jobs?

Labor Force Education Dictates Type of Growth Possible

Stagnant Incomes for 23 Years

+7%

-8%

Lake Elsinore $61,250

Job Growth vs. Other CA Areas

30,0

50

41,0

25

37,6

42

36,5

33

36,7

75

41,4

83

46,0

08

6,34

2

9,75

8

4,57

5

16,9

17

28,9

25

23,0

83 38,3

25

40,6

92 56,4

67

49,8

50

40,5

67

33,2

92

35,4

67 59,2

75

61,5

33

44,6

92

2,50

8

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

e

Sources: CA Employment Development Department, Economics & Politics, Inc.

Exhibit 3.-Wage & Salary Job ChangeInland Empire, Annual Average, 1984-2013

Continuous Job Growth For Decades,But . . .

(46,

208)

(84,

892)

(17,

325)

4,63

3 23,0

25

-146,400-11.4%

Unemployment Falling, But High

Worst U.S. Metropolitan Area Unemployment Rates

Share of Underwater Homes Plunging

Poverty

Exhibit 2.-Share & Number of Inland Residents Below Poverty LevelCensus Bureau

Year People In Poverty Share of Population in Poverty Population

1990 306,417 11.8% 2,588,7932000 477,496 14.7% 3,255,5262011 774,874 18.0% 4,293,892

Changes +152.9% +6.2% +65.9%

Lake Elsinore14.5%

Water Issue

1. Delta Smelt2. 20 Years Water Supply To Build3. Santa Ana Sucker4. Replacement Water Cost: $1,862,000,0005. If Water Can’t Be Found … Can’t Build Large Projects

CA’s Regulatory Environment

CEO’s: California is the Worst State for Business

Status of Sectors Capable of Driving Recovery

Logistics Flow of Goods

Truck To Inland Empire

Sophisticated Warehousing Operations

Port Container Volumes

Fulfillment Centers (John & Dan)

Sales Tax Revenue to Cities (1,000,000 SF)($5 million per year under assumption

50% of Sales Out of California)

17 Firms Looking For Space (John & Fran)1,500,0001,000,0001,000,000

800,000 to 1,000,000700,000 to 1,000,000500,000 to 800,000700,000 to 900,000

850,000700,000700,000

700,000 to 800,000600,000

600,000 to 700,000500,000450,000

300,000 to 400,000350,000

Source: Jones LaSalle

Size JobsE-Commerce: 6,150,000 to 6,450,000 SF 5,467 to 5,733 JobsConventional: 5,800,000 to 6,800,000 SF 1,850 to 2,092 JobsTotal Potential: 11,950,000 to 13,250,000 SF 7,282 to 7,826 Jobs

Average Square Feet Per Job Combined = 1,641 to 1,693

Industrial Vacancy Rate Recovering Everywhere!

Inland Empire 2.7% 12.8% 5.8%San Diego 7.0% 12.0% 9.9%Orange Co. 5.4% 6.5% 3.2%L.A. Co. 2.1% 3.2% 2.0%

2005/2006 2009Q3 2013Q2

IE Gross Absorption Back at 12.5million Sq. Ft.But Still Under Its Long Term Average

Inland Empire Logistics Jobs

28% of All Inland Jobs … Jan-July 2012-2013

Health Care

Health Care Jobs: Continuous Growth

700 500 900

Determinants of Public Health

Robert Woods Johnson-University of Wisconsin•40% Socio-Economic•30% Health Behaviors•20% Access to Health Care•10% Environmental Factors

Public Health Determinants

San Bernardino County 46th

Riverside County 36th No Health Insurance 23%People Per Physician: SB Co. 1,868 40th

People Per Physician: Riv Co. 2,514 47th

Health Care Issue

Manufacturing: Could Be A Major Growth Source

Manufacturing Orders Declining

Inland Empire Manufacturing Jobs

U.S. v. California Manufacturing Jobs

Regulatory Environment Aimed At “Dirty” Blue Collar Sectors

Air Becoming CleanerExhibit 6.-PM 2.5 Days over National Standard vs.

Total Square Feet of Net Industrial Absorption Since Highest PM2.5 level

Monitoring Sites Mira Loma-Van Buren

Riverside-Magnolia

Riverside-Rubidoux

Fontana-Arrow Highway

Ontario-1408 Francis Street

San Bernardino-4th Street

2001     120.2 58.2 79.5 80.8

2002   88.4 92.6 73.7 67.4 88.9

2003   69.7 78.1 54.3 62.2 55.2

2004 * 47.8 57.3 * * *

2005 * * 39.7 22.9 25.3 9.3

2006 46.2 31.3 * 27.2 * *

2007 43.4 * * * * *

2008 * 12.4 15.0 19.3 19.4 9.5

2009 19.0 6.0 15.1 6.2 9.0 6.2

2010 8.0 6.3 4.0 6.6 3.2 5.9

2011 13.0 7.1 5.0 7.1 6.8 *

2012 7.0 * 7.0 10.6 0.0 0.0Change From

Highest -39.2 -81.3 -113.2 -63.1 -79.5 -88.9

Change -84.8% -92.0% -94.2% -85.6% -100.0% -100.0%Net Absorptiont Since Highest 86,378,254 183,911,357 229,967,544 183,911,357 229,967,544 183,911,357

Median Pay By Sector Groups

Results: A Policy Cause Crisis

• California Uncompetitive for Manufacturing & Other Blue Collar Work

• Reduced Access To Middle Class Jobs For Marginally Educated Who Are A Huge Share of Workers

• Disproportionately Impact Hispanic & African American Families

• Health & Social Justice Issue Being Created

• Increasing the Income Disparity in the State

Construction: Finally Some Hope

Construction Share of Lost Jobs

56.1%

118,800

66,300

Total Job Decline 2006-2012Construction Job DeclineConstruction Share of Lost Jobs

Source: CA Employment Development Department

Construction Share Of Lost JobsInland Empire, Dec. 2006-2012

Share of Underwater Homes Plunging

Home Prices Finally Rising

46.4%

26.5%

48.2% less for Existing home

Lake Elsinore Price Trends

+37.4%

Lake Elsinore Price Advantage

Inland Empire’s In-migration From Coastal Counties Has Not Yet Recovered

-15,538

Not Bringing Skills, Wealth, Income & Spending

Investor Pre-Market Home Buying

2007 July 2007 2008 July 2008 2009 July 2009 2010 July 2010 2011 July 2011 2012 July 2012 20130%5%

10%

15%

20%

25%

30%35%

40%

45%

50%

55%

60%

0%5%

10%

15%

20%

25%

30%35%

40%

45%

50%

55%

60%

Source: Foreclosureradar.com

Exhibit 12.-Direct Investor Purchase of Foreclosure SalesInland Empire, 2007-2013

57.8%

Families Can’t CompeteRealtors Have Less Business

How Much Higher Is The Likelihood of Calls for Police Service?

Single Family Rental v. Owner Occupied

How This Ends: A Housing Shortage

106,2309.35 per

new person

During 2008 thru 2012California Population Grew by 993,624

Looming Shortage

Permits: Finally Some Optimism

Construction: Data Weird

High-End & Office Based Jobs

Office Market: Some Recovery

Office Vacancy Rates Improving But Still Very High

19.2%

High End Occupations & Office Operations Gaining Strength

California Grabbing Money From Local Government … School Funding Cut

Jerry Brown’s Hand

Federal Job Cuts

SequesterBudget FightDebt Ceiling

Assessed Valuation Finally Growing (3.6% for both Counties)

-6.7%

With 7.3% Inflation-14.0% Less

Purchasing Power

2012-2013Riverside Co. +3.99%Lake Elsinore +2.91%

Retail Sales Returning

-$3.9 Billion-6.3%

With 12.5% Inflation-16.7% Less

Purchasing Power

Lake Elsinore Retail Trade: Rising!

Inland Empire2006-2012

-$3.9 Billion-6.3%

Retail, Consumer Service, Hotel, Amusement Jobs Growing

Growth OccurringBut Restrained

Public Sector A Drag!

Where Will IE Be In Its Job History?

www.johnhusing.com