CA Is In Permanent Decline

The positive is reducing exposure from a heavily regulated state versus CPT’s broader Sunbelt investment focus – Alexander Goldfarb, Piper Sandler

Camden Property Trust (CPT) – an $11 billion Apartment REIT – is the latest REIT to decide to exit the California real estate market. CPT will sells its 11 properties valued at approximately $1.5 million to concentrate on the Sunbelt markets, according to an article by CNBC’s Diana Olick. This follows a move last year by InvenTrust Properties (IVT) to sell its portfolio of shopping centers in California.

California is also facing a potential exodus of billionaires bent on evading a proposed Wealth Tax. While the Wealth Tax purportedly charges a one time 5% tax, owners of stock will be assessed not based on the value of their shares but on valuation according to their voting interests. Many founders have special classes of stock that have 10 votes per share as opposed to 1 vote for Class A shares. These founders could be taxed on a value 10x the economic value of their shares, making it impossible to maintain control of their businesses without selling shares to pay the tax. It’s no wonder so many of them are heading for the exits.

The California Legislative Analyst’s Office projects an $18 billion budget deficit for 2026-27. Further, this is not a one year issue; it is structural. The Legislative Analyst’s Office sees the deficit growing to about $35 billion for the three years following 2026-2027.

The Wealth Tax is an attempt to deal with these deficits but it risks killing the golden goose. According to The California Franchise Tax Board, the top 0.1% of California earnings (~17,500 households) paid more than 16% of California’s income tax in 2023 and the top 10% about 75%. Why would these people stick around?

For those who understand economics – which clearly does not include California’s liberal state representatives – it is the wealthy that provide the investment money to create and grow businesses that provide jobs. They don’t hide their money under the mattress or spend it on luxury goods; they invest it in productive endeavours. As more and more wealthy people and corporations leave California in the years ahead, the state will become a banana republic and eventually go bankrupt. It is certainly time to at least consider getting out.