Coastal California & Inland West Market Paradox | Durable Value Ep. 98
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Joe Muratore: In many ways, uh, the Western US is a story of coastal California and the inland West. We sit, our office and where we are, are from, is at the edge of the inland West in the Central Valley of California. It's where our thesis started, and we thought today we would delve into what's happening with coastal California and what that means for the in- inland West, the paradox of these two things that need each other and are adjacent to each other, but have very different stories.
Let's start with some statistics. For the last 25 years, California has lost population. Most of this is talking about coastal versus inland California, where it's two very different price points and populations, but, but the fact is true. 230,000 people on average leave the state. Over a 15-year period, about 10 million people moved out and about 7 million people moved in.
So the net is that 230,000. U-Haul, which, uh, tracks these statistics, has, uh, California in, in dead last. So 50 out of 50. More people moving one way than, uh, than coming back. It is important to know that 1.6 million people over the last 15 years have moved from coastal California to inland California. It's been one of the largest recipients o- of this migration, even though it's within the s- the same state.
A lot of what's driving this is that 82% of Californians cannot afford a home In California, the median home price as we stand today is $862,000 in California. Most of that is driven by coastal California, which it could be as high as 1.1 or 1.2, but the payment on that as we speak is $5,300 a month. Most Americans can't afford that, and this is growing even this, this year as well.
Ryan Swehla: And it's interesting because as soon as you go over the mountains into inland California, it's very much a story of the rest of the inland West, where cost of living is about 40% lower than it is on coastal California. Median home prices are more in line with what they are in Colorado or Utah or Arizona.
So let's talk a little bit about, you know, why people are making that move. You know, one of the key reasons is quality of life. They can actually afford a home. They can actually have a quality of life that they consider to be desirable, uh, where they're not priced out of, you know, all forms of real estate, and they're not a perpetual renter, too.
Joe Muratore: I like to think in, of this in terms of inevitabilities. Like there's a, a range of outcomes that are coming, and some are, are just intuitive or very likely, and maybe we can talk about what some of those are. I mean, for starters, it seems like the world is getting more expensive. It feels like inflation is not going anywhere.
It does feel like construction costs are not more to what institutional tenants and, I, I'm sorry, industrial tenants and apartment tenants can pay. Wood and labor, copper are all getting more expensive, and as our population ages, there's fewer workers. I mean, it's getting more expensive to construct things at a time when people can't afford things already.
So on the one hand, people are structurally looking for lower costs and will be for the foreseeable future. The inland West offers that. Add to that, that work from home trends, AI trends, self-driving cars are making it easier to be not in major networked cities. And then add to that, uh, automation, self-driving trucks, electrification, power plants, where things are going, and they are not moving closer to coastal nodes.
They're moving to where there is, uh, more space and it's more cost-effective.
Ryan Swehla: The story of the inland West is the st- expansionary part of the United States. I mean, since its beginning, decade over decade, these markets have had positive population growth because it's a high quality of life part of the US, but it also is, you know, on a relative basis, it's an affordable part of the United States as well.
So we've been seeing this firsthand, where year over year, positive population growth is a strong tailwind to the markets that we invest in.
Joe Muratore: So it seems like during our careers and lifetimes, this is gonna be an ongoing trend. I mean, we built our, our core thesis on the idea that- You know, there are about 80 Modestos in the Western United States.
I mean, Modesto in its MSA has half a million people. It's a, a vibrant node that is, uh, nestled between larger economies, so it's not well-noticed. But you look at El Paso and Spokane and Colorado Springs and Reno-Sparks, I mean, th- these are, uh, Salt Lake City and even St. George, and places like this, Cheyenne.
But these are, are built throughout the West, and they all offer an attractive proposition that was less true 20 years ago and is increasingly true today. Lower cost of living, better quality of life. They're in transportation and jobs nodes, and, uh, more opportunity exists there today than it did before.
Basically, the value proposition is higher. So I mean, unless you are one of the few that can benefit from coastal living, you will be seeking out a much, an overall better net value of life in other places, and this is a durable thesis that we will play a role in for the next few decades.
Ryan Swehla: And it is a structural problem or a structural opportunity, depending on which side you're on.
Because The coastal west is not getting any cheaper. With a, uh, regulatory and taxation environment, development, and, uh, restriction that limits new supply, there are just a lot of structural dynamics that will keep the coastal west increasing in cost of living. And meanwhile, the rest of the west has a very attractive quality of life, outdoor opportunities, ability to buy home, just a lot of dynamics that make it an attractive part of the United States.
This kind of structural dynamic will continue into the future as it has for decades prior.
Joe Muratore: I'm excited. I see this as a, a durable, structured opportunity. It's like you're building the lattice of the west. Our job is to connect these cities, to have our team on the ground, to own the kind of assets where renters and s- you know, small bay industrial.
The... Like, this is where, uh, commerce lives. This is where workforce lives. We're doing the same thing in two directions. We're supporting, uh, the jobs, including, like, last mile, including distribu- some distribution, including some manufacturing. This, this is as, as safe an, an AI class of buildings as you could have.
Yeah. And we're supporting the workers who need affordable places to live that are near their jobs. And we're not just doing it, uh, in one spot. We're doing it in a latticed way, where we can see the macro of what's happening and the tactical opportunity that's on the ground. Like, on the one hand, we can observe the west 'cause we have buildings throughout the west.
We can see that data. We can see where it's rising and falling. We can see where there's, you know, opportunities at times. And we can also be, because we're in those markets, learn about the building around the corner that needs a new owner and act on that, uh, quickly. It's a, it's a great advantage.
Ryan Swehla: We've been boots on the ground since our firm started in these markets.
In some ways, we were here with our flag planted investing in these markets before the data supported or before the data really showed what, what the strength of these markets is. I think COVID, the COVID pandemic, just like it shined a light on the southeast, it shined a light on many parts of the Western US as high quality of life, affordable places to live.
But it's not like that the pandemic created that, and it's not like that's going away. This is a trend that has been happening for decades prior to that and will continue for decades in the future, and it really is an exciting opportunity to be a firm firmly planted in these markets and investing in these markets and being on the forefront of what we believe will continue to be a compelling, uh, investment thesis.
Over the last 15 years, 1.6 million people have left Coastal California
for the Inland West without ever leaving the state.
In this episode of Durable Value, Joe and Ryan break down the paradox at
the center of the Inland West: two economies sitting right next to each
other, dependent on each other, and moving in opposite directions. They
walk through the migration data, the affordability math driving it, and
the structural forces keeping coastal costs climbing while the Inland
West stays within reach.
They also lay out the thesis the firm was built on: there are roughly 80
Modestos across the Inland West. Mid-sized markets nestled
between larger economies, strong on quality of life and cost, and largely
unnoticed by institutional capital.
If you're trying to understand where population, jobs, and industry are
actually headed over the next few decades, start here.
Timestamps:
0:00 - Two Californias: coastal, inland, and where the thesis started
1:03 - 1.6 million people move inland without leaving the state
2:06 - Why they move: affordability, quality of life, and not renting forever
3:08 - Structural tailwinds: remote work, automation, and electrification
4:06 - The 80 Modestos thesis: Spokane, El Paso, Colorado Springs, Reno-Sparks
5:57 - Building the lattice of the West: boots on the ground in every market
7:20 - COVID shined a light on a trend that was already decades old