FivePoint Communities Inc.’s transition into a publicly traded company will make its executive team rich and provide plenty of financial cover for the next housing downturn. It should also free up plenty of cash for future real estate acquisitions in and out of Orange County.
That much is clear from the flurry of regulatory paperwork filed by the Aliso Viejo-based master developer this month for its proposed initial public offering, a plan that’s been in the works for nearly two years.
What’s less clear is how the pending IPO would affect the ownership structure of Great Park Neighborhoods in Irvine and of other big California developments FivePoint runs and has an ownership stake in but doesn’t own outright.
FivePoint’s main holdings—Great Park Neighborhoods, Newhall Ranch in Los Angeles County, and San Francisco’s Candlestick Point and Shipyard development sites—already were part of a convoluted ownership structure, thanks in part to a series of restructuring deals over the past seven years and a variety of investment groups with interests in some but not necessarily all of the company’s land holdings.
The forthcoming IPO would add another level of complexity, based on a reading of FivePoint’s nearly 300-page registration statement filed with the Securities and Exchange Commission.
The proposal calls for FivePoint, which would operate as Five Point Holdings LLC upon the offering’s conclusion, to raise $100 million from new shareholders, although the amount is subject to change.
FivePoint’s largest investor, Miami-based homebuilder Lennar Corp., would buy an additional $100 million in stock as part of the deal, and two other investment groups that already have stakes in the company—New York-based Third Avenue Management LLC and Castlelake LP of Minneapolis—could each buy an additional $25 million in company stock, according to SEC filings.
The price of FivePoint’s stock, which would trade on the New York Stock Exchange under the FPH ticker, hadn’t been set, nor had the percentage of the company’s outstanding stock that would be owned by the public following the IPO.
The offering’s underwriting is being led by Citigroup and J.P. Morgan.
2005 Buy
Going public would result in another Great Park Neighborhoods ownership structure change. More than 3,800 home lots and land that will hold 2 million square feet of commercial space have been sold over the past four years at the 2,100-acre residential and commercial development site that surrounds Orange County Great Park. That’s about 40% of what’s projected upon build-out.
The land is entitled to hold another 5,600 homes and nearly 3 million square feet of additional commercial space.
A Lennar-led investment group headed the 2005 buy of the former El Toro Marine Base property from the Navy in a deal led by the builder’s chief investment officer at the time, Emile Haddad and Jon Jaffe, Lennar’s chief operating officer.
Haddad left Lennar in 2009 to head FivePoint, which the builder spun off in order to manage its largest California projects. Jaffe now serves on FivePoint’s 11-person board along with Lennar Chief Executive Stuart Miller and President Rick Beckwitt.
The initial buy of the Irvine land was reportedly backed by $775 million in financing from Lehman Brothers Holdings Inc., which went bankrupt in 2008, plus $700 million more in equity from a variety of investors.
Investors following a 2010 recapitalization included Lennar and FivePoint, along with Michael Dell’s MSD Capital LP, plus a number of state retirement funds and other large institutional investors.
FivePoint increased its stake in the Irvine venture in a 2014 deal, and last year, about a year after first proposing an IPO, it completed a complex restructuring plan that involved all of the large properties it operates, including Great Park Neighborhoods.
The Great Park Neighborhoods venture now has two classes of ownership, “percentage interests and legacy interests,” according to regulatory filings. The owners of the legacy interests, which includes MSD Capital and affiliates of Lennar, but not FivePoint directly, “are entitled to receive priority distributions in an amount equal to $565 million” from the Irvine development, prior to the owners of percentage interests getting paid.
FivePoint notes in the registration statement that, “We do not control the Great Park Venture” due to the development’s current ownership structure, a fact that could limit its decision-making ability.
The company has a 37.5% stake in the “percentage interests” side of the Great Park venture, according to SEC filings.
Brisk Sales
Despite, the opaqueness of the Great Park ownership structure, there seems to be plenty of money to go around to pay off all project investors, lenders and executives, not to mention funding the 1,300-acre Orange County Great Park development. Thank a red-hot market for new homes in Irvine for that.
Land sales at Great Park Neighborhoods have brought in about $1.7 billion since 2013, according to regulatory filings.
Lot prices averaged about $460,000 for homes at the development’s first community, Pavilion Park; $495,000 for the second community, Beacon Park; and about $313,000 for the assortment of attached townhomes and condos now selling at its latest community, Parasol Park.
Land for Altair, a high-end, 840-home project planned by Lennar and Horsham, Pa.-based Toll Brothers Inc., sold in late 2015 for about $570,000 per lot.
FivePoint, as part of the 2010 recapitalization deal, arranged about $390 million in loans from Boston-based State Street Bank to fund Great Park Neighborhoods. It paid off the loans several years ago, and the project, like FivePoint overall, is largely debt free.
FivePoint execs have recently been paid well for their work, based on a reading of regulatory documents.
Haddad earned more than $34 million between May 2016 and the end of the year, factoring in bonuses and stock awards, and Chief Legal Officer Michael Alvarado and Executive Vice President Lynn Jochim each earned over $7 million.
Broadcom Buy-Back?
Proceeds from the IPO would be used “to fund our development activities and for other general corporate purposes,” according to SEC filings, which didn’t specify uses.
Area real estate watchers are keeping an eye on whether some of the money could be put back into some of the new offices being built at Great Park Neighborhoods.
FivePoint sold 73 acres at the southern edge of the former Marine base in 2015 to Broadcom Corp. for a new 1.1-million-square-foot, multibuilding office development now nearing completion.
The Business Journal reported last year that Broadcom was considering a sale of all or some of the property following the chipmaker’s downsizing of local operations after its sale to Avago Technologies, whose U.S. operations are based in Silicon Valley.
Multiple real estate watchers say the local office of Hines Interest LP will lead the purchase of the Broadcom campus, although no deal has been announced.
Real estate sources familiar with the property tell the Business Journal that FivePoint could still be involved in the proposed sale, either by working with Hines as a part owner in the transaction or by exercising a buy-back option it’s believed to have with Broadcom.
