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Homebuilders Differ On Land Strategies

Two of the largest homebuilders based here have different ideas of how to prepare for an eventual rebound in the market.

Irvine’s Standard Pacific Corp, the largest locally based homebuilder, is snatching up land in California with some $150 million in buys approved in the past three months.

William Lyon Homes Inc. of Newport Beach, the largest privately held homebuilder here, is taking a more tempered approach, buying about a tenth of what Standard Pacific has in the same period.

Standard Pacific is coming off its best quarter in more than three years, posting a $10.7 million second-quarter profit.

“We bought a lot of land,” said Chief Executive Ken Campbell during a recent call with analysts. “We said we were going to, and we did.”

The company’s approved more than $300 million worth of land deals nationwide so far this year.

William Lyon Homes, coming off a second quarter that saw it post a $4.5 million loss, has been less aggressive in acquisitions.

Bill H. Lyon, son of company founder and Chief Executive Gen. William Lyon, said in a conference call this month that the company is “well situated” for a turnaround in the market, despite owning 9% fewer lots than it did a year ago.

The company’s “still looking at land,” said Bill Lyon, president and chief operating officer. “We’re doing a good job of reloading.”

Both companies have been among the first builders to buy lots from Newport Beach’s Irvine Company, at projects such as Irvine’s Portola Springs and Woodbury.

Most of the land deals that Standard’s making still are coming from developers like Irvine Co., rather than banks selling off distressed assets, according to Campbell.

The prices still make financial sense, with the homebuilder expecting to make at least a 20% profit on the land it buys, according to Standard officials.

The company’s eyeing large distressed local assets like those owned by Irvine-based SunCal Cos., but bankrupt lender Lehman Brothers Holdings Inc. has yet to put them on the market, Campbell said.

Any deal the company would make for those types of projects—expected to cost hundreds of millions of dollars—likely would be done in a joint venture, he said.

California Buying

About 75% of Standard Pacific’s recent land targets—totaling nearly 2,900 lots last quarter—were in California. About 40% of the 22,000 lots the company now owns or controls are in its home state. It closed on 891 home sales last quarter, including 374 in California.

The company is anticipating a rebound in home sales by 2013 or 2014, according to Campbell.

“The market’s going to be good, and you need to buy the land now,” he said.

Standard’s had success in a tougher housing market as the average price of homes it is selling has been rising. It also is starting to see some activity in the high end of the housing market, Campbell said.

The company sold three Southern California homes for more than $6 million last quarter and another 30 homes for more than $1 million.

William Lyon Homes, the 29th largest builder in the country last year, hasn’t put as much emphasis on land buys of late.

The company bought about 240 home lots last quarter, with about a third of those in California. Of the more than 9,500 lots the company now owns, only about 12% of them are in California, according to company figures. It also builds in Nevada and Arizona.

Even though it’s not buying too much locally, William Lyon Homes is seeing most of its sales in its backyard.

Of the 373 new home orders it had last quarter, more than 60% were in Southern California. It has two projects selling in Irvine, and it is marketing another project in Tustin’s Columbus Grove.

The company has about 536 homes under construction, with 319 of those in Southern California.

It’s seeing “indications of stabilization” in many of its markets, and has been revisiting a few projects that were suspended during the bleakest parts of the downturn, officials said.

Some of William Lyon’s largest land deals last quarter were sales. It made $17.2 million in an “opportunistic” Northern California land sale in the second quarter, which helped the builder minimize its losses for the quarter, the company said.

The company, which went private in 2006, has spent much of the past year buying back debt at a discount, paying off construction loans and shoring up cash on hand.

“We’re trying to de-lever the company,” said Colin Severn, the builder’s chief financial officer.

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Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
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