Look no further than Irvine-based California Pacific Homes Inc. to get a good gauge of the ups, downs and changing market dynamics in Orange County’s residential real estate market of the past few years.
California Pacific, a homebuilder previously known as The Bren Co., was started decades ago by Donald Bren, chairman of Newport Beach-based Irvine Company. He turned the company over to his son, Cary Bren, in 2000 when the younger Bren, who had been the company’s president for two years, bought the homebuilder’s assets for an undisclosed sum.
The company has built more than 2,000 homes in the county since that sale, primarily on land purchased from Irvine Co. As recently as 2006, the company was reportedly paying more than $2.3 million an acre for land approved for single-family homes in developments such as Irvine Co.’s Woodbury.
California Pacific sold close to 400 homes annually in Irvine near the peak of the market and employed more than 100 people here. But when the housing market crashed, the company stopped building and effectively mothballed operations by early 2009.
Executive Builders
The company’s dormant operations were kick-started back to life in 2010, when it was among a handful of builders selected to build new neighborhoods at Irvine Co.’s Woodbury project near the former El Toro Marine base, under the company’s so-called executive builder program. Builders were paid a fee by Irvine Co. to put up homes under the master developer’s program in a bid to reignite the new-home market.
Irvine Co. traditionally has sold lots to builders that put up homes according to specifications set by the company. The executive builder program paid dividends: Irvine Ranch was one of the best-selling master-planned communities nationwide during the past two years with more than 1,800 home sales.
California Pacific sold 99 homes there last year at a project dubbed Santa Barbara for a No. 7 ranking on this week’s Business Journal list of Homebuilders (see story, page 21). But it will bear watching whether the company maintains a presence on the list in the future, as Irvine Co. has moved most of its Irvine Ranch construction in-house during the past year to Irvine Pacific LP.
Meantime, California Pacific has turned its focus to becoming one of the area’s biggest apartment builders and the latest company to take advantage of the surging multi-family housing market.
It’s acting as a general contractor for the Village of Cypress, a massive, four-community apartment complex going up in Irvine along the Santa Ana (I-5) Freeway, just off Jeffrey Road. The mega project recently opened its doors earlier this month and has begun leasing, though a good portion of the development remains under construction.
March Move-Ins
The Village of Cypress, once completed this summer, is slated to hold 1,677 apartments. The first group of renters is expected to move in next month.
California Pacific also has started branching out as a general contractor for senior housing, resort developments, and institutional and education facilities, according to the company’s website.
But its work in the red-hot market for rental properties in OC appears to be its main source of business right now. That income stream could continue for at least a few more years if market trends continue.
Close to 5,000 apartments are under construction, or in the planning stage, in Irvine alone, according to city records. Irvine Co. is developing a bulk of those projects.
Those totals dwarf the recent new-home sales totals for the region.
Orange County’s 28 most active new-homebuilders sold a total of 1,777 homes in the county last year, or just 100 more homes than apartments going up at the Village of Cypress, which is one of several major apartment projects going up in OC right now.
OC’s apartment market has entered “full expansion mode in virtually every market,” said Hessam Nadji, managing director for the research and advisory services division of brokerage Marcus & Millichap Real Estate Investment Services.
“Favorable demographics, the release of pent-up demand as young adults debundle from family and roommates, and increased renter demand due to changing attitudes towards homeownership–which has become increasingly difficult in this country–drove more people into renting,” Nadji wrote in a research report.
Marcus & Millichap’s national apartment report for 2012 forecasts rents in OC will increase 4% this year to $1,576 per month. Vacancy rates are expected to fall from 4.3% to 3.9%, despite a glut of new complexes coming on line this year.
About 8,500 apartments will have been built in OC between 2009 and the end of this year, according to the brokerage’s data. A bulk of the new construction is taking place in Irvine, where Irvine Co., the area’s main landowner, has been taking steps to add thousands of new rental units to go along with its new-home construction.
Land Purchases
Irvine Co. recently bought about 14 acres of excess land from Irvine office landlord LBA Realty at the Park Place mixed-use complex along the San Diego (I-405) Freeway.
A 980-unit complex is planned there, near the headquarters of disk drive maker Western Digital Corp.
The Park Place project has yet to move ahead, unlike complexes under construction in Irvine Spectrum, including a 1,750-unit complex near the former home of the Wild Rivers water park.
Apartment sales should continue their torrid sale pace this year, according to brokerage data.
Apartment sales in OC traded hands at an average rate of $147,083 per unit last year, according to Marcus & Milichap. That’s up 5.4% from 2010 prices.
Higher Prices
Higher-end projects can draw prices well in excess of that level. A 250-unit apartment complex in San Clemente reportedly changed hands this month for about $220,000 per unit, as part of a larger portfolio sale.
Charleston, S.C.-based Greystar Real Estate Partners LLC bought the Whisper-ing Winds complex in San Clemente in a four-complex, $169 million sale that closed about a month ago. The four complexes total 820 units and sold for a capitalization rate of 4.8%, according to reports.
A unit of New York-based BlackRock Inc. was the seller. The San Clemente complex went for $55 million, according to CoStar Group Inc. data.
Whispering Winds is located about 1 mile east of the San Diego (I-5) Freeway in
the hills of San Clemente and was built in 1986. It was 92% leased at the time of the sale, and averages monthly rents of about $1,490.
The other properties trading hands in the Greystar deal include complexes in San Diego, Riverside and North Hollywood.