50.6 F
Laguna Hills
Friday, Dec 9, 2022
-Advertisement-

Irvine Pacific Phases Out Fee Building

Fee building projects for Irvine Pacific, the in-house homebuilding arm of Irvine Co., have long been a steady source of business for Aliso Viejo-based New Home Company (NYSE: NWHM).

That’s changing as the area’s largest landowner phases out its fee building business, instead choosing to manage construction internally.

Irvine Co.’s shift for how Irvine Pacific homes will be built is a notable shake-up at the Irvine Ranch, long the best-selling master-planned community on the West Coast.

A total of 850 homes were reported to have sold in the community last year, down from 1,000 the year prior.

New Home earned 25% of its revenue from its Irvine Pacific fee-building arrangement in 2017; that figure fell to 14% in 2019 as sales of Irvine Pacific homes on the Irvine Ranch slowed, according to the builder’s latest annual report.

Fee building revenue in the third quarter was $13.4 million, down about 40% from the prior year, and New Home expects revenue to be between $5 million and $8 million in the fourth quarter.

As a result of this switch, New Home is looking elsewhere for fee building opportunities to offset declines.

The company recently announced a new partnership with Irvine-based FivePoint Holdings LLC (NYSE: FPH); officials say they have more fee-building deals in the works.

FivePoint Partnership

New Home is facing “a near-term reduction in fee building revenues resulting from Irvine Pacific’s decision to manage their construction of their homebuilding operations on their own, and phase-out our fee building arrangement with them,” Chief Executive Leonard Miller told analysts on its third-quarter earnings call.

He added that the firm is in discussions with other undisclosed landowners for new opportunities, which “will help partially offset a near-term reduction in fee building revenues.”

The first new partnership is set to take place at FivePoint’s Great Park Neighborhoods.

New Home announced a few months ago plans to build a 38-unit collection of single-family homes at FivePoint’s Rise community, a 700-home development in Irvine which opened earlier this year.

In the partnership, FivePoint will maintain a stake in the land, and fund the entire cost of the Atlas project with New Home getting a fee.

Coming Up

New Home said it is gearing up for more opportunities.

Miller noted in the earnings call that the company has “been approached on several different fronts for some pretty exciting fee opportunities” in Arizona and California.

“We think it can drive a significant part of our business, help us grow earnings while not having to put any form of significant capital into the business,” Miller said.

This includes the potential to build up to 1,400 homes in the state, Miller said.

The name of the potential partner was not disclosed.

FivePoint, which in addition to Irvine, also is ramping up work at the Los Angeles community of Valencia.

“We expect our fee building revenues to decline over the next year and then increase in 2022 as new opportunities start generating fee revenue and profits,” Miller said.

Want more from the best local business newspaper in the country?

Sign-up for our FREE Daily eNews update to get the latest Orange County news delivered right to your inbox!

-Advertisement-

Featured Articles

-Advertisement-
-Advertisement-
-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-