UNTIL a year ago, says Larry Benaroya, CEO of the family-owned Benaroya Co., the firm's real estate investments were centered in the Puget Sound area. But since selling the four-building Metro Park complex last fall for $345 million, Benaroya has begun to look farther afield. One place that has caught his eye is the Yakima Valley. In the past nine months, the Benaroya Co. has acquired large properties in the valley.

"I just saw it as an opportunity for better returns," remarks Benaroya, whose company has had a knack for predicting major market shifts ever since it sold $315 million worth of its holdings before a major market downturn in 1984.

That's great news for local civic leaders, who think that a string of recent investments by Benaroya and other West Coast investors could lead to an upturn in the economy of the Yakima Valley. The state's largest county is an agricultural powerhouse, but its economy has been stagnant for years.

"Getting Benaroya to invest here is a big coup," says Al DeAtley, the owner of Superior Asphalt and a civic leader in the region. "Yakima has reached a tipping point. [Investors] view the region as a new investment frontier."

In addition to Benaroya's investments, other prominent developments in the area include the establishment of the Pacific Northwest University of Health Sciences, a four-year university in Terrace Heights near Yakima; Zillah Lakes, a 230-acre community residential development south of Yakima; and the recent revitalization of downtown Yakima. Perhaps it was just coincidence, but in the second half of 2006, for the first time in years, nonagricultural employment growth in the area climbed faster than in the state as a whole.

These developments have been a long time coming. For well over a decade, civic leaders from Yakima County have been trying to diversify their economic base by enticing businesses from the highcost Puget Sound area, but with little success. Now it is outside investors, not local entrepreneurs, who are driving economic and demographic changes in the valley. The changes are reflected in a booming commercial and residential real estate market.

"We have been here 25 years and this is the biggest demand I have seen for housing," says Vern Holbrook, owner of Aspen Reality. "The growth is also a different pattern. It is not just people moving up the ladder. Retired people from California, Portland and Seattle are purchasing homes, baby boomers from the westside are buying second homes, and outside investors are buying homes for rentals." The attraction is value. "People can sell their homes for about $600,000 and buy an equivalent home or better here for about $250,000."

United Builders (UB), which focuses on constructing moderately priced homes, is banking on a transformation in the region. The company has broken ground on a planned waterfront residential project of 650 units with a golf course, a 16-acre recreational lake and various commercial amenities. The first 75 units have been put up for sale, and demand has been strong. "We have lot reservations for all of them, mostly from the westside," says Pat Stroshal, co-owner of UB.

Since the project was the first of its kind in the Yakima Valley, it wasn't easy for UB to obtain financing. Now, however, the demand is vindicating UB's decision to make the bold investment. Stroshal believes the demand is driven not just by affordable prices, but also by a changing perception of Yakima. Once seen as a sleepy agricultural area, the valley has begun to develop a reputation as a wine region, giving it newfound cachet.

But wine isn't the only thing giving Yakima a boost. "In our marketing surveys, people responded that arts and culture were very important in their decision to move," says Stroshal. "We now have a professional symphony orchestra; the Capitol Theatre, which brings in quality shows; and the Seasons Performance Hall, which features the best in jazz and classical music on a weekly basis."

Yakima is not experiencing the kind of booming housing prices for secondary homes seen in Ellensburg, Cle Elum and Lake Chelan. But demand for residential real estate has continued to strengthen at a time when prices are falling in much of the country.

Commercial activity has also dramatically increased in the past two years, says Bill Almon Jr., of Prudential Almon Reality, one of the biggest commercial real estate companies in Yakima. "Development has occurred in the larger markets like Portland and Seattle. The tenants are all in place, and land values are high, so investors are looking at secondary markets like Yakima."

In March, Benaroya acquired the 509,840-square-foot Ace Hardware distribution center, a space that Ace vacated for a larger facility in the area. Benaroya also recently purchased the land and facilities that now house Western RV, a recreational vehicle manufacturer. And other westside investors have acquired two large tracts of land in Yakima, where they plan to develop retail malls.

The lure of the Ace complex for Benaroya was simple: value. "We acquired an existing building that was [priced] much lower than we could buy here [in the Puget Sound area]," said Marc Nemirow, who is in charge of acquisitions and development for the company. "We were able to get a high-quality facility at about $16 a square foot."

Benaroya says the company was attracted not only by the low prices, but also by the positive business environment in the region. "The lower cost of doing business - lower taxes and labor costs - makes it easier to attract tenants," he says.

Benaroya is quick to add that his decision to invest in places like Idaho and Yakima doesn't mean he's bearish on the Puget Sound market. "It's a strong market [in the Puget Sound area]," he says. He just sees better opportunities elsewhere. Benaroya says a broker called him after he purchased a property in Idaho. "He saw I was buying outside of the Puget Sound Area and suggested I look at the Ace Hardware property."

Fred Bruning, president of the Bridgeport, Ore.-based CenterCal Properties, has already scored one major Yakima Valley success. Over the past five years, he poured $40 million into renovating the Yakima Valley Mall, an abandoned retail mall in Union Gap. That mall is now a premier regional shopping center. Bruning is looking for over 300,000 square feet to accommodate retailers who want to enter this growing market.

"In the near future," Bruning explains, "California will add 12 million to 14 million people to its base, which will put pressure on the West Coast. The first to benefit have been Salt Lake City, Portland and Seattle to some extent. The next tier of markets, like Yakima and Union Gap, will soon come on the radar screen, and there is evidence of it happening. New homes are being built and purchased by people from the westside. Agriculture is making a transition into the wine industry. Yakima's image was a sleepy area; now it is ready for a remaking."

Bruning is placing large bets on this theory. His company, which is in partnership with the California Teachers Retirement fund, has developed large scale projects in Salt Lake City and the Portland area to the tune of well over a billion dollars. Now he sees the Yakima area as virgin territory for developers.

Aaron Stewart, a Tacoma-based investor, agrees. "Without a doubt," he says, "Yakima and eastern Washington are a frontier for developers, both new and established." Stewart has spent well over $3 million in the Yakima Valley in the last two years, primarily in downtown Yakima, buying, restoring and transforming old hotels for high-end retail and residential uses, including a boutique hotel. Yakima is the 34-year-old Stewart's first development project.  Previously, he bought and sold real estate in King and Pierce counties.

Stewart says that when he purchased the properties in downtown Yakima, people asked him, "Why Yakima?" But recently, he adds,  "more and more people are getting interested in what I'm doing. I have brought several people over here to look at the area. They have not closed any deals, but the interest is there. It will take some time, but the tide has turned."

The attraction for Stewart is also the bottom line. "The cost of doing business on the westside [of the state] has gone up dramatically in the last two years, and it is hard to get a good rate of return on your investment. The potential rate of return is much greater in Yakima and other eastern Washington communities."

Stewart is not the only westside investor who believes Yakima is a new frontier for investors. Gary Bodenstab, who developed the first condos in downtown Tacoma, hopes to duplicate his success in downtown Yakima. He has teamed with a local developer, JEM Enterprise, to transform an old department store complex into condominiums. The venture has had its hurdles, but that is to be expected of "emerging markets," says Bodenstab, who describes himself as a small developer. "It is a challenge to invest [here] because it's not a proven market; it is risky for developers."  Still, the 22-unit complex is on target to be completed by fall 2007, and already 14 people have reserved condos with a deposit.

However, some developers are discovering that a rising real estate market in a region doesn't necessarily mean businesses will be eager to move in. For 10 years, business leaders, through the Yakima County Development Association (New Vision), have touted the area's strategic location, large labor force and lower cost of doing business to entice westside manufacturing companies and call centers. In all those years, they attracted only five companies, which have provided a total of 500 jobs. And as it tries to recruit distribution businesses to its new Yakima Distribution Center, Benaroya is now facing the problem.

Considering the high cost of acquiring warehouse space in the Puget Sound area, says Mike Roy, of Neil Walker Co., a real estate service company that represents the Benaroya properties, "I am surprised that we haven't had much interest from Seattle-based companies."  He said Puget Sound companies seem reluctant to relocate from where their clients are. Now, Roy is looking to attract business from the rest of the country.

Still, the company isn't worried about losing money on its Yakima properties. "We have only had the building for a year," explains Benaroya's Nemirow. "Right now we are not nervous. We bought it knowing there would be some time before we leased out the facilities."

Dave McFadden, CEO for New Vision, believes part of the problem in capturing westside companies is that expansion is not a current priority for many Puget Sound businesses. Indeed, over half the businesses surveyed recently said they had no plans to expand and no need for real estate, according to McFadden.

But he thinks there is another problem with trying to attract business to the area: the lack of a strong identity. "There is a warm feeling about the area, but there is no definite image," McFadden says. Although people have a sense that the area is changing, it is still regarded as an agricultural community. While many now see it as a tourist attraction because of the growth in the wine industry, few see it as a good place to do business.

Resolving Yakima's image and lifestyle issues is critical to the development of Yakima's economy, says Stewart, who was disappointed that Yakima was not included in a recent Seattle Magazine article extolling the wine country of eastern Washington. Stewart is adamant that the problem can be solved with more comprehensive marketing efforts.

"People here do not know what they have here. I drive through the valley, and every time, I see something new," says Stewart. "Everyone needs to come together with a cohesive marketing plan, one that combines the environmental beauties, the weather, wine country and the economy. Groups are just focusing on individual aspects, but it has not come together in a robust marketing plan."

But Yakima's socio-economic landscape is clearly beginning to change with the entry of new outside investors. In addition to the commercial investments, outsiders with a good deal of disposable income are beginning to buy homes in the valley, a trend that seems enticing to investors like Bruning. Outside investors like Stewart and Bodenstad are helping to revitalize the downtown core. And patience seems to be the name of the game when it comes to tapping into westside development snarls and attracting industrial and manufacturing interest. "Sooner or later, they will feel the pinch and start looking to Yakima," Mike Roy believes. "It is just a matter of time." The trick, though, may be for the community to pull everything together. "It will happen," says Stewart. "They just have to further build out the downtown core and work together to promote what they have."

But all that could take time. Nobody knows when the tipping point will come, turning the current trickle into a river of investments.