The effect of the subprime mortgage industry on Orange County’s housing market is likely to fall between two extremes, according to John Burns, president of Irvine-based Real Estate Consulting Inc.
“I think (the fallout) will be worse than what homebuilders believe it will be, but it will be better than what the press thinks,” Burns said at a recent event held by the Center for Real Estate at University of California, Irvine’s Paul Merage School of Business.
For the record, several local builders I’ve spoken to think a minimum of 20% of prospective buyers for the county’s local projects likely are subprime loan candidates.
Also, I’ve refrained from using this telling quote by D.R. Horton Inc.’s Chief Executive Don Tomnitz: “’07 is going to suck.”
(Tomnitz since has backtracked from that prediction, Burns said.)
What to expect?
“There’s no doubt there will be a surge in foreclosures” because of the subprime industry’s woes, Burns said.
Roughly 30% of California buyers are using adjustable-rate option loans, he said.
Notably, for every six homes sold in Orange County, another home enters default, according to Burns.
Subprime loans make up about 14% of the country’s mortgage loans but likely will be responsible for almost 60% of the foreclosures this year, said Frank Nothaft, vice president and chief economist for Freddie Mac in Washington, D.C.
One good sign for OC: Unemployment is by far the biggest reason home owners become delinquent on their mortgages, followed by illness or death in the family, Nothaft said. The area’s strong employment base and continued job growth should ward off the problems other areas of the country are likely to see from the subprime fallout, he said.
Any recent rosy forecast given by local homebuilders is probably overly optimistic, Burns said. They now are likely selling homes here at prices 20% less than they originally expected, he said.
Irvine-based construction company Snyder Langston just put the finishing touches on nearly $100 million of local projects, and isn’t seeing any signs of a local slowdown.
“We finished up 13% ahead of our projection (last year), and anticipate that the upward trend in construction activity will likely continue another 18 months,” said Frank Martinez, vice president of business development for Snyder Langston.
The company recently completed its part of one of the larger commercial projects seen here recently: putting up the exterior core and shell for eight buildings at University Research Park for chipmaker Broadcom Corp.
Snyder Langston said its work for The Irvine Company development, which runs about 685,000 square feet in total, came to about $66 million.
Broadcom began moving workers into its part of the complex,eight three- and four-story buildings next to UCI,last month.
Snyder Langston also rebuilt the clubhouse for the swank Pacific Club in Irvine for $12 million. The new clubhouse runs about 29,100 square feet. MVE & Partners of Irvine did the design work for the project.
Snyder Langston also did $8 million worth of work for an 80,491-square-foot office building built for Shea Properties’ Vantis project in Aliso Viejo, and a $12.6 million industrial complex in Fountain Valley being built for Operon Group of Newport Beach.
Airth Leaving Koll
Alan Airth, one of four managing principals of Koll Co., is leaving the Newport Beach-based de-veloper and real estate owner.
Airth has decided to pursue other opportunities, the company said. He joined Koll six years ago, and was responsible for buying industrial and office properties and marketing and selling developments.
He expanded the company’s commercial real estate portfolio by more than 4 million square feet. Koll now owns and manages more than 5.2 million square feet of office and industrial space, and has an additional 1.1 million square feet under development, including small offices for sale near the Irvine Spectrum.
In addition to Donald Koll, the company’s founder and development icon (who suffered a 2005 stroke and last week received a lifetime achievement award), the other managing principals include Jerry Yahr and Bryan McGowan.
Higgins Back Building
The Newport Beach-based office of Higgins Development Partners LLC is planning its first California project in more than five years.
Higgins and financial partner Walton Street Capital LLC, both of Chicago, have plans for a seven-story, 363,000-square-foot office building in Burbank.
The 6.5-acre site is one of the last entitled development areas in the tight Burbank office market, said Nader Shah, senior vice president with Higgins.
The office, to be called 2300 Empire Center, and accompanying parking structure is expected to cost $130 million.
Irvine’s Ware Malcomb is designing the office, which should break ground in September.
Higgins’ last project in the state was the 820,000-square-foot Yahoo corporate campus in Sunnyvale, which was completed in 2001.
