By DANIEL MILLER
The future financial health of KB Home may well be helped by something unusual for the nation’s largest suburban house builder: apartment-style condominiums.
An early version is in development in Los Angeles’ Warner Center as well as in Irvine and Anaheim.
The Los Angeles project, dubbed Ascent, is set to hit the market in the next few weeks. It features units as small as 640 square feet, includes private cabanas and communal hot tubs.
Ascent bears little resemblance to the suburban subdivisions that generated big profits for Los Angeles-based KB Home during the past decade.
With home sales slowing, a good piece of KB’s future growth may well ride on the market’s reception of Ascent and similar developments in Orange County.
“You now have a sea change. The industry is in a horrendous correction,” said analyst Gregory Gieber of A.G. Edwards & Sons Inc. “In some of these markets I think it’s a very viable idea. It makes a lot of sense.”
The housing slump has taken a big bite out of the company’s earnings. Net income dropped 84% in the quarter ended Feb. 28 to just $27.5 million. Revenue fell 19% to $1.7 billion.
OC projects hitting the market this summer,with construction scheduled to be completed next year,include the Carlyle at Colton Plaza in Irvine and Anavia in Anaheim. As for Ascent in Woodland Hills, the sales center is set to open in July with the 191 condominiums ready by spring 2008. Prices will range from $300,000 to $600,000.
The developments mark the first significant push into local markets under the company’s KB Urban venture since it completed a 63-unit condominium development in Playa Vista near Marina del Rey several years ago.
They also mark the first new projects for the venture since the company pulled out of the Convention Center hotel project at L.A. Live,a project championed by former Chief Executive Bruce Karatz who resigned in November amid an inquiry into stock options backdating.
The L.A. Live project would have involved luxury high-rise condominiums. But the company pulled out of the project just across from Staples Center after Jeffrey Mezger took the helm late last year.
The difference with the Irvine, Anaheim and Woodland Hills projects is that they are in what Mezger calls “suburban urban” settings with “lots of jobs and a high demand for housing and not a lot of such condos.”
“The strategic move for the company remains the same, in that we want to expand our business in the urban products closer to jobs,” Mezger said. “We decided to start in California and make sure we are comfortable with the execution and then we will export it to other cities. Every major city we operate in has these opportunities.”
The KB Urban projects target empty nesters and young families or working professionals.
The location of Irvine’s 156-unit Carlyle puts it near John Wayne Airport, while Anavia is near Angel Stadium in a pedestrian friendly neighborhood of Anaheim.
In pursuing the developments, KB is targeting homebuyers who in the past may have purchased suburban developments in Palmdale and other suburbs. But at a time when traffic congestion continues to worsen, they may be willing to give up green lawns and backyard barbecues for shorter commutes.
“Their choice is to either drive one and 1/2 hours to work or look at an alternative project,” Mezger said.
Bill Toth, owner of Windermere Real Estate in Burbank, said that projects like the Warner Center, or urban condo developments, make sense these days in Southern California, where residents are increasingly tiring of long commutes.
“A lot of the studio and the professional businesspeople like those types of places,” he said. “They don’t have families yet,or maybe one child,and they will live there a few years and then maybe move to another neighborhood.”
Miller is a staff writer with the Los Angeles Business Journal.
