A 250-acre land transaction in the heart of Irvine would be the highlight of the year for most area real estate companies and developers.
For FivePoint Communities Inc., it capped off a relatively quiet week following a hectic few months when it went public and announced plans to make the largest office acquisition here in years.
“I got to spend the weekend at home with my family for the first time in two months,” said FivePoint Chairman and Chief Executive Emile Haddad last Monday at his company’s Aliso Viejo headquarters, a few days after Irvine approved a 250-acre land swap at a June 6 city council meeting involving land earmarked for Orange County’s first military veterans cemetery.
It’s been that type of spring for Haddad and FivePoint, which became one of OC’s largest publicly traded real estate companies following its May 10 initial public offering. The deal and associated private placements raised nearly $420 million in proceeds for FivePoint, whose market value is now about $2 billion. Its shares are up about 4% since the IPO.
Only four publicly traded real estate companies in OC have valuations topping $2 billion: Irvine homebuilder CalAtlantic Homes at $4 billion; Santa Ana title insurance firm First American Financial Corp. at $4.8 billion; and Aliso Viejo-based Sunstone Hotel Investors and Irvine-based real estate data and technology firm CoreLogic Inc., each at about $3.6 billion.
Irvine Co. is privately held but by far OC’s most valuable real estate company.
Haddad’s no stranger to life at a public company. He was previously chief investment officer of homebuilder Lennar Corp., which spun off FivePoint in 2009 and remains the master developer’s largest investor.
“It’s not what I expected” when starting the company during the last economic downturn, said Haddad, who spent the bulk of FivePoint’s early years restructuring its projects’ financing and ownership.
The potential of losing ownership of its sites, including the former El Toro Marine base in Irvine, was a strong possibility during that period, he said.
FivePoint’s assets are now big moneymakers and largely debt-free, based on a reading of its financial documents.
Home sales at the Irvine project didn’t start until 2013; associated land sales have since brought in more than $1.7 billion. Great Park Neighborhoods is entitled for roughly 5,600 homes beyond what’s been built so far.
FivePoint is due to release its first quarterly earnings as a public company this week. Last week, it held its first post-IPO board meeting.
Irvine Focus
FivePoint oversees development of four big master-planned communities in California: Irvine’s Great Park Neighborhoods, Newhall Ranch in Los Angeles County, and San Francisco’s Candlestick Point and Shipyard development sites.
Expect to see a few items pertaining to the company’s Irvine operations take the forefront on this week’s earnings call.
On May 19, FivePoint confirmed in regulatory filings that the developer plans to exercise its buy-back option for the roughly 1-million-square-foot campus of San Jose-based Broadcom Ltd. under construction in Irvine, a development the Business Journal previously reported as a possibility.
The $443 million deal, the most expensive local office transaction in years, is expected to close in the third quarter, according to regulatory filings. FivePoint sold the land for the project to the chipmaker in 2014.
As part of the forthcoming transaction, Broadcom plans to lease back two of the buildings at the campus totaling 640,000 square feet. FivePoint and Lennar also are expected to move their operations to other buildings there. Haddad said the lease on his company’s current offices in Aliso Viejo expires next year.
San Jose-based Broadcom, whose market value is $104 billion and whose U.S. operations are based in San Jose, has indicated the deal should have little financial impact.
“We do not expect to recognize a significant gain or loss upon completion of the sale,” the company said in its latest quarterly report on June 8.
Newsmaking Deal
Back to that 250-acre land swap. Irvine City Council’s approval of the transaction with FivePoint came on a 3-2 vote. The council approved a FivePoint proposal to turn a 125-acre agricultural site the company owns near the intersection of the Santa Ana (5) and San Diego (405) freeways into the long-awaited veterans cemetery.
The deal allows FivePoint to transfer development entitlements originally granted for what are now strawberry fields to a 125-acre city-owned tract on the opposite side of the former El Toro Marine base that was initially proposed as the cemetery site.
FivePoint says it believes the swap will result in a cemetery that’s less costly and easier for the city and taxpayers to develop while allaying neighbors’ concerns about placing a cemetery close to Great Park Neighborhoods homes.
The developer has said it will contribute a minimum of $10 million to fund the initial cemetery construction phase, and the state has pledged $30 million toward the project, which initially was estimated to cost $80 million at the original site. Specifics on its design and a construction timeline haven’t been determined.
Haddad said he’s ready to start the project “yesterday.”
Critics asked for more details in FivePoint’s offer, and cited the potential impact of development on the land FivePoint would be given in the swap.
The new cemetery site is near the Broadcom office campus that’s under construction.
Its on-the-fly relocation, which FivePoint initially proposed, is in keeping with Haddad’s mantra as a master developer: Be flexible in the planning stages, and let the community figure out the best uses of certain sites.
That’s reflected in particular in the open spaces at the first Great Park Neighborhoods communities, whose uses are less rigid than other areas of the city, Haddad said.
He said future Great Park Neighborhoods phases will include more unique housing and retail projects designed to give the areas a more urban feel appealing to younger generations, in addition to more affordable housing projects.
