When it comes to building homes, David Close is pretty close to the top of the pecking order.
He’s one of a couple of dozen developers who are putting up the big homes on or near Orange County’s Gold Coast.
Close builds multi-million dollar custom homes from Newport Beach to Laguna Beach in established communities such as Emerald Bay, Lido Island and Big Canyon, as well as in newer enclaves such as Pelican Crest.
“There’s been such (economic) growth that home sales have just been staggering,” Close said.
Staggering enough that he’s planning to ramp up revenue and change the name of his company from WMC Development to Pacific Design Estates. The WMC are the initials of his father and company co-owner, William M. Close.
“We’re trying to get a name that better defines the business,” said Close. “Even though Newport typically has smaller lots, we feel the homes we’re building in Big Canyon and Pelican Crest are true estate homes.”
While Close did not disclose any of his buyers or resale prices, industry sources and local records show Cisco Systems executive vice president Gary Daichendts and his wife, Kathy, bought an East Balboa Boulevard home for $2.8 million. A Las Vegas real estate developer, Martin Collins, and wife, Pauline, made their home on West Bay Avenue for $3.25 million. And software exec Dalbert Brandon and his wife, Carol, snagged a humble abode on East Oceanfront for $2.7 million.
Most of Close’s clients are buying vacation homes , only four of 17 homes he has sold so far have been primary homes, Close said. Many of the buyers spend most of their time in Silicon Valley or Las Vegas, he said.
William Cot & #233;, a longtime broker of high-end homes, figures there are about 20 “legitimate” custom builders working along the Orange Coast. He puts David Close “easily” in the top five.
High-end custom competitors such as John McMonigle of McMonigle Residential Group and Kevin Weeda of CWI Development, both based in Newport Beach, also build in the area, as do high-end production builders such as Capital Pacific Holdings and Taylor Woodrow Homes.
Competition and economic growth, of course, have produced higher lot costs.
On Lido Isle, says Close, a 30-by 90-foot bay-front lot in 1998 cost $1.55 million to $1.75 million. Now it would take more than $2 million to buy that same piece of ground, he says.
In Pelican Crest, the type of community Close would rather build in today, lots of 15,000 square feet to 25,000 square feet have gone up 30% on five price increases in two years.
“The Irvine Co. used to offer a 5% discount if you closed in 10 days,” said Close. “The market is so strong that it has rescinded that discount.”
And you pay the list price.
Close used to be in the paper business. In a way, he still is. But today the ex-salesman for his dad’s former company, Kirk Paper Co., a commercial distributor of printing and business papers, deals more with wallpaper and escrow papers than with bright whites, linen and 25% cotton bond.
Pace Picking Up
In 1998, WMC Development’s first year in business, Close sold five homes for a total of $11.7 million. In 1999 it was eight for $17.4 million. A third of the way through 2000, he’s at four homes sold and $7 million in volume.
He’s stepped up the pace in 2000, however his average resale price fell below $2 million because two of the four were “smaller” homes on Balboa Boulevard that sold for $750,000 each. The other two came in at $2.2 million and $3.3 million.
Close regards each home individually, referring to them by street address rather than city. He declined to discuss his profitability, but Cot & #233; said custom builders typically net 8% to 10% on the price of the final product.
Close plans for the company to do about $45 million to $55 million in sales on a “comfortable” 10-12 homes per year going forward. To get there he’ll be boosting home sizes.
He has 11 homes finished, under construction or in design. Three of these are done, with another one nearing completion and are for sale at $3 million to $5 million each. Seven are under construction , three at 4-plus million, one at $5 million and three at $8-plus million each.
Close’s average-size home is decidedly above-average,about 6,000 square feet. That’s a lot of wallpaper. To get there, Close has trended toward building in newer communities such as The Irvine Co.’s Pelican Crest, rather than concentrating on tear-downs of older homes in high end, established areas.
In new communities, Close can choose lots designed for his kind of homes, and prices don’t depend on conditions in established neighborhoods, which is where he started out.
He almost wound up washing cars. In 1997, Close was looking for a business to start and the closest one he came to other than home-building was operating a chain of car washes.
But his parents spent weekends in Newport Beach, his sister and in-laws lived in Orange County. So David Close began looking for a local home not to buy for himself, but to buy, tear down, rebuild from scratch and sell.
‘Phenomenal’ Opportunitity
The opportunity was “simply phenomenal.” His dad invested, they made five serious offers for properties, and three hit in two days.
“532 Via Lido Nord,” remembers Close wistfully of his first property, begun in October 1997.
Close pays cash for his lots, self-financing the purchase, and owning the dirt until he sells the home. “This makes us a stronger buyer,” said Close, because he can move on deals faster.
Lots are easier to deal with, Close said, than “tear-down” product a home bought for its location, then torn down to make way for new product.
“People are asking exaggerated prices on the resale side because new homes are getting such a high price,” he said.
Further, there’s emotion involved:
“The owners have lived there 30 years. It’s easier to negotiate if they see it as dirt.”
Unless a lot is “truly spectacular,” he said, the bidding process doesn’t go on long. “We try to negotiate before it gets to the public.”
In his tear-down work he’s been partial to “pocket listings,” homes whose owners’ do not want the open-house hassles of the multiple listing services but who want to gauge interest in their lot.
The priciest lot for Close so far has been an Emerald Bay parcel with a 1930s-era home on it. He’s replacing it with a 6,590-square-foot cliff-top Mediterranean estate. Close paid $3.5 million for the lot.
That partly explains why Close would rather build in new projects. “We’re going into communities now where everyone pays the same price for lots,” said Close, who works exclusively with broker Coast Newport Properties.
Once he buys ground, Finton Associates of Pasadena and Newport Beach is the general contractor and West Los Angeles architect Sinclair Associates designs most of the homes. Rick Weiner of Irvine-based The Busch Firm handles transactional details.
“I, or one of my staff, am on the job site every day,” Close said.
Market Effect Uncertain
What effect the recent downturn in tech stocks might have on the housing market in Orange County remains to be seen. Demand has been at a feverish level. According to Dataquick Information Systems, 867 million-dollar homes were sold in Orange County last year, a 36% increase from 1998. In Newport Beach last year, Cot & #233; said, there were 257 resales of homes for more than $1 million, twice the number in 1996.
Demand has pushed up lot prices, which adds to the cost of these big houses,as do the increasing amenities the buyers want. These include media rooms, theaters, wine vaults, ‘smart-home’ systems and high-end landscaping.
Where before people were spending $15,000 to hardscape (decks, patios, etc.) and landscape a 30-foot lot, he said, now it ranges from $65,000 to hundreds of thousands of dollars, depending upon the client’s specifications. This is fountains-by-the-pool, firepits and other high-end stuff.
His own tastes currently run a bit below his clients’. Close and his wife, Stephanie, live in The Castaways, a production project by Taylor Woodrow.
