Toll Brothers Inc. and Lennar Corp. have entered into a blockbuster deal to build more than 800 homes at a future phase of development at Great Park Neighborhoods in Irvine.
The two companies, each among the largest homebuilders in the U.S., recently entered into a joint venture to co-develop a portion of a 272-acre swath of land along the northern edge of the former El Toro Marine Base.
The development, described by Lennar as “Heritage Hills,” will be north of Irvine Boulevard in one of the few hilly areas of the former Marine base.
The venture “expects to develop approximately 840 home sites on the land in multiple phases,” Horsham, Pa.-based Toll Brothers disclosed in recent regulatory filings.
A time frame for the project opening has not been disclosed. Representatives of the two builders could not be reached for comment at press time.
Some early-stage grading work is moving ahead on a portion of the site just off Irvine Boulevard.
Construction-related documents posted at an entrance to the development say it will be completed by the end of 2019.
The project looks likely to hold some of the priciest homes seen to date at Great Park Neighborhoods, with an average value for the project’s lots approaching $500,000, if not more, based on a reading of the two builders’ regulatory filings.
Toll Brothers said it is committed to paying at least $207.5 million for its 50% stake in the venture, or about $494,000 per lot.
The new venture’s assets are worth about $478 million, according to Lennar’s estimates. That equates to a price of nearly $570,000 per lot.
The Heritage Hills venture, in both home count and total dollar value, is among the largest residential land deals in Orange County since 2005, when an investment group led by Miami-based Lennar paid $1 billion to buy the former Marine base.
Both U.S.-based and foreign builders have been snapping up large-scale sites across the county over the past year, betting on the area’s strengthening housing market, according to Sal Provenza, a partner with Irvine-based land brokerage WD Land.
“We are seeing homebuilders with strong balance sheets and the desire to deploy significant cash acquire large-scale infill development opportunities right here in Orange County,” Provenza said.
The Toll-Lennar venture marks the largest example of that recent trend.
The two-builder venture also appears to mark a shift in strategy for home sales at Great Park Neighborhoods.
Eight builders were tapped for the 726-home Pavilion Park, the first phase of development at Great Park Neighborhoods, which opened in 2013. Ten builders are now selling homes at the 960-home Beacon Park neighborhood that kicked off sales last year.
Heritage Hills marks the first time a large chunk of the development will be overseen by a relatively small field of builders. Lennar and Toll Brothers are expected to build and sell all the homes by themselves.
“The current plan (for Heritage Hills) is to develop the property and sell approximately 50% of the value of the home sites to each of the members of the joint venture,” Toll Brothers said in regulatory filings.
Toll Brothers, which bills itself as the country’s largest builder of luxury homes, has found success in Orange County of late by tackling other big developments on its own or with just one other partner.
The company is the sole builder at the 250-home Hidden Canyon project near the intersection of Laguna Canyon Road and Lake Forest Drive in Irvine.
Prices have been averaging more than $2.5 million per home there, with brisk sales reported since its opening early last year.
The builder is preparing to launch the second phase of its Baker Ranch community in next-door Lake Forest this month. The project, which will hold nearly 1,800 homes and more than 400 apartments, is a venture between Toll Brothers and Walnut-based Shea Homes.
Toll Brothers paid a reported $110 million for a 50% stake in the 372-acre Lake Forest development.
“It would be difficult to identify a developer other than Irvine Company and FivePoint Communities with a stronger land position in the Irvine-Lake Forest submarket than Toll Brothers,” WD Land’s Provenza said.
$320M Seller Financing
Lennar does not appear to be paying as much upfront as Toll Brothers for its 50% stake in the Heritage Hills venture, due to its continued role as an investor in Great Park Neighborhoods.
Toll Brothers said in regulatory filings that it has made a $76.8 million investment in the venture to date and that it is committed to make an additional $130.7 million in contributions.
Lennar’s latest annual report, filed in late January, said that the builder had invested $54.2 million in the new venture as of late November.
The two builders have received $320 million in seller financing from Great Park Neighborhood’s existing ownership group—which operates under the name Heritage Fields El Toro—to finance “a portion of the land acquisition,” according to Toll Brothers’ latest annual report.
Investors in Heritage Fields besides Lennar include Starwood Capital Group, Michael Dell’s MSD Capital, and FivePoint Communities, the Aliso Viejo-based master developer of Great Park Neighborhoods, which was spun off from Lennar in 2009.
Lennar reported having a $274 million investment in Heritage Fields El Toro as of late November. The other investors’ individual stakes in the project are unknown.
Lennar’s latest annual report placed a $1.4 billion value on Heritage Fields El Toro’s assets as of Nov. 30.
The builder—which runs much of its day-to-day operations out of Aliso Viejo—said that Heritage Fields El Toro posted about $1.1 billion in earnings last year, factoring in sales of land to Beacon Park homebuilders, to Broadcom Corp. for its new corporate office campus, and the 840 home sites earmarked for the joint venture with Toll Brothers.
The 3,700-acre Great Park Neighborhoods site, which largely surrounds Orange County Great Park, is entitled to hold about 9,500 homes, in addition to nearly 5 million square feet of commercial space.
Factoring in the latest deal at Heritage Hills, a little more than a quarter of the available home sites at Great Park Neighborhoods have been snapped up by builders.
