CIP Acquires Two Business Parks; MDC Works Closer to Home
RESDENTIAL
December’s California Supreme Court ruling in the construction defects case Aas vs. Superior Court sent a ripple of relief through the state’s homebuilders. Temporarily.
Early speculators popped champagne as they reveled in the prospect of more attached housing construction in wake of the decision.
But in the immortal words of ESPN analyst Lee Corso: “Not so fast, my friend!”
Nick Cammarota, general counsel for the Sacramento-based California Building Industry Association said the decision is not so much a victory as an upholding of the status quo.
“They didn’t lose,” Cammarota said of homebuilders. “It would have been devastating to the industry had they lost.”
The decision does not equate automatically to increased production of condominiums, as some early reactions claimed, according to Cammarota. It does, however, create new questions and conflicts, setting the stage for debate between homebuilders and insurance companies and, potentially, future legislation to limit that debate.
The case sought an answer to a specific question: Can a homeowner or homeowners association sue the builder for construction defects when no damage or injury has occurred? In a 5-2 vote, the state’s highest court said no.
Now, the big question for homebuilders is whether insurance companies will back condos and other attached housing. If insurance companies won’t insure homebuilding, then you won’t have construction going on. It’s as simple as that.
“We’re entering a much harder time for insurance,” said Jeffrey D. Masters, co-chair of the Development Risk Management Practice Group of law firm Cox, Castle & Nicholson LLP. “Insurance is less available and more expensive worldwide.”
According to Masters, builders should focus aggressively on quality controls. Two of the major companies who offer insurance to homebuilders, Zurich Financial Services Group and Legion Cos., require builders to show that effective quality control programs are in place.
Representatives from Zurich and Legion were unavailable for comment.
A multitude of detailed building regulations adds to the problem.
“The building code of California is 10,000 pages long,” said one industry insider who asked not to be named. “It’s difficult, if not impossible, to ensure that every one of the codes is abided by, especially in a state with unstable soil.”
An initial investment in educating construction workers could save builders headaches in the future, sources say. But precautions can’t eliminate frivolous suits.
“We’ve seen a list of alleged damages in one Orange County lawsuit in which damaged elements included an architectural feature ,i.e., an outdoor stairway landing,that didn’t even exist in the project,” the source said. “Advocates of construction-defects reform tell us that standardized defects lists are sometimes used, showing how lawsuits can become financial shakedowns rather than address real damages.”
For now, Masters believes the court ruling will cause a shift in the debate.
Another industry source said, “The Supreme Court ruling was favorable, but really, legislation is needed to spur the market.”
But with legislators bogged down addressing California’s energy crisis, any other legislation likely will be relegated to the back burner.
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Master Development Corp. has made its mark since its inception in 1995, primarily through the development and general contracting of industrial buildings in the Inland Empire. Lately, the Newport Beach-based company has focused its attention closer to home. In recent years, Master has identified large undeveloped parcels in the Boeing Park area of Huntington Beach.
“The area goes back to the ’60s, when it was an aerospace campus,” said Bryan Bentrott, a Master principal.
Primarily known for doing third-party work, MDC acquired and developed the Huntington Beach properties. The company purchased its first Boeing Park property in ’97. MDC has developed the 103,000-square-foot Skylab Corporate Center, which opened in December and is home to Pacific Shoe Corp, Morgan Metals and a 138,000-square-foot build-to-suit warehouse facility for Dynamic Cooking Systems.
CIP Busy
Irvine-based CIP Real Estate recently acquired Fullerton Business Center, a large business park on Walnut Avenue near the junction of the Riverside (91) and Orange (57) freeways. CIP acquired the three-building, 161,127-square-foot complex for $8.06 million. The park, which caters to credit tenants specializing in manufacturing and distribution, is fully occupied.
CIP represented itself in the transaction; Jerry Nourse, Bob Smith, Michael Kane and Forrest Wylder, all of CB Richard Ellis, represented the seller, a partnership affiliate of Legacy Partners.
In a second deal, CIP purchased Ponderosa Technology Park, in Kearny Mesa in San Diego County. CIP acquired the 155,529-square-foot building from an affiliate of JP Morgan for $14 million. CIP plans to renovate the structure to attract telecom and high-tech tenants. AT & T; recently signed a 10-year lease agreement to occupy the park.
Trammell Crow Co.’s marketing team of Jeff Cole, Rick Putnam and Fay Ryan represented the seller.
The acquisitions are part of CIP’s joint venture program with Alex Brown Realty Inc. of Baltimore, Md.
