Strapped for Land, OC Homebuilders Are Looking Up
By DANIEL D. WILLIAMS
Strong demand and scarcity of land has some Orange County homebuilders looking in a new direction: up.
Several developers are reported to be considering vertical, high-density housing projects once unthinkable for OC. Getting the most buzz are “four-over-two” townhomes,four floors of residential space above two underground parking levels.
Economics are a key driver. With less developable space, land is pricier. One way to offset the cost of land is to build more on it. Four-over-two projects can yield 35 to 40 units per acre, sources said.
The question is whether there’s a market in OC to build developments with density that high.
Already, projects with higher densities than usual for OC are in place or in the planning stages at Taylor Woodrow PLC’s development at Banning Ranch (25 units per acre), Ladera Ranch (18 units per acre) and Talega near San Clemente (13 units an acre).
There are smaller projects in Brea, Fullerton, Irvine and Orange that have a mix of verticality or density that is uncommon locally, according to Richard M. Gollis, a principal with Newport Beach-based consulting firm The Concord Group,
The Irvine Company is said to have some four-over-two developments in the works, according to one source.
“The Irvine Ranch has townhomes under entitlement, but those are at least five years out,” said John Burns, president of Irvine-based John Burns Real Estate Consulting, Inc. “There are other entitled projects on Tustin Ranch, that are 20 units per acre and priced in the $200,000 range, but those are also five to six years out.”
An Irvine Co. spokesperson declined to comment on the company’s plans.
Construction-defect lawsuits effectively halted the development of condominiums a few years ago, according to Burns. But he believes new legislation and a dwindling land supply will make vertical housing an inevitable necessity.
Already, some developers are buying apartments and other properties and converting them into condominiums or townhomes, according to Barry Saywitz, president of Newport Beach-based The Saywitz Co. That’s playing out in pockets in Santa Ana, Anaheim and along the coast in Huntington Beach and Newport Beach, where rental properties are being converted.
But don’t look for the trend in points south.
“In South Orange County, you’re seeing more single-family development than condos because there’s not the demand there, and there’s more land,” Saywitz said.
One reason conversions aren’t more widespread: “You have to sell the condos individually as opposed to one big sale with the apartments,” Saywitz said.
Most builders are looking at in-fill type products, according to Burns. But those don’t make sense for everyone, he said.
“It’s a tough business for the public builders to get into,” he said.
That’s because such projects usually are small and design-intensive and many require zoning changes, according to Burns.
“It’s a better niche for private builders,” he said.
There’s a scattering of vertical developments locally such as The Metropolitan in the John Wayne Airport area of Irvine and the 20-story Lido Village Condos on the Newport Harbor waterfront. And there is talk of Trammell Crow Residential developing two 15-story towers at Park Place in Irvine.
But these are exceptional cases.
“Orange County is dominated by masterplanned communities and will not look at heavy densities,” said Scott Stowell, president of Irvine-based Standard Pacific Corp., which has high-density projects in Los Angeles and elsewhere, but not OC.
While high-density building could meet resistance, the economics and the demographics are there to support it, according to The Concord Group’s Gollis.
“On the condo side, there really are dynamics in place,” Gollis said. “You have an aging population, looking for a lower-maintenance environment, particularly in the Irvine market.”
The older consumers want the convenience that attached housing provides, Gollis added.
“There’s also a segment that can’t afford detached housing,” Gollis said. “The entry-level market has growth pending and that’s an important factor.”
Gollis said it’s a long way off, but the South Coast Metro area has the correct mix for vertical product, too.
“We’re talking about 10 to 20 years down the road, but the area around the Performing Arts Center has the office, retail and entertainment that a vertical project requires,” Gollis said.
He said the parking lots in South Coast Plaza could be torn up and turned into high-rise residences.
Another potential spot is Fashion Island. The problem there is the voter-approved Greenlight Initiative in Newport Beach, which would require a citywide vote on a major project. Another potential location is Santa Ana near the Bowers Museum.
But vertical has its economic limits, too, according to Tim Strader Jr., executive vice president of Irvine-based Starpointe Ventures.
“You see an interest in developments up to four stories, but you see the costs spike above four,” Strader said.
