This month’s grand opening of a collection of three new home types at Irvine’s Eastwood Village community had a bit of a carnival atmosphere, with an assortment of food trucks, balloons for children, and other giveaways for the more than 1,000 people who braved the summer heat.
The Aug. 12 kickoff of the latest homes at the Irvine Co.-led development had one other notable, and now somewhat rare, feature: on-site model homes for prospective buyers to tour, courtesy of Brookfield Residential, The New Home Co. and Richmond American Homes.
The Eastwood Village event is an exception to the rule, among the last set of large new home communities in Irvine and a few other Orange County cities to open recently.
More big and expensive housing projects are coming to market well in advance of their models being complete. And by all indications, a lack of product to tour isn’t hampering sales, thanks to a strong local new-homes market that’s showing no signs of a slowdown.
For Toll Brothers Inc., robust sales growth in California in the past few months “is coming out of a number of very successful communities in Orange County,” Chief Executive Doug Yearley said last week during his company’s quarterly earnings call with analysts.
The Horsham, Pa.-based company, the largest luxury-home builder in the U.S., is among the most prominent builders in Irvine eschewing grand-opening model home events as their official kickoff of sales at a few local projects.
Its Vistas at Orchard Hills community in Irvine, whose 223 planned homes have starting prices approaching $3 million in some cases, opened its sales offices several months ago with relatively little fanfare.
The builder just recently opened model homes on the development site, which it bought last year from Newport Beach-based Irvine Co. for a reported $200 million.
It’s believed to be the first time since 2010 that a large new-home community has opened in that manner on the Irvine Ranch, the best-selling new home community in the country.
Irvine Co. officials declined to comment on their preferred strategies to rolling out communities on its land.
Prior launches of Irvine Co.-led developments, such as the initial phase of Orchard Hills in 2014 and the first phase of Eastwood Village last year each drew more than 5,000 people in its opening weekend.
Similar crowds turned out this past January for the model-heavy opening of Parasol Park, the nearly 1,000-home third phase of development at Irvine’s Great Park Neighborhoods that’s being led by FivePoint Communities Inc.
Altair, an 840-home luxury project next to Great Park Neighborhoods that Toll Brothers is developing with Lennar Corp., took a more low-key approach when it opened sales offices in June.
Models for the homes, which in some cases will sell for more than $2 million, likely won’t come online until this fall, according to the builders.
Likewise, most of the community amenities, like recreation centers and pools, which are often the first buildings constructed at new neighborhoods, haven’t been built.
Industry watchers cite the impact of heavy rains this past winter for some of the construction delays at Altair, which encompasses about 280 acres of hilly land to the north of Irvine Boulevard.
No models, no problem, it appears. Both Vistas at Orchard Hills and Altair have surpassed initial sales projections, sources tell the Business Journal.
Toll Brothers’ new Orchard Hills offerings have already made 75 sales, according to recent marketing data from Irvine-based land brokerage WD Land. Altair, meanwhile, is said to have seen over two dozen sales to date, according to real estate sources.
“We are very well-positioned within Orange County and have significant pricing power right now,” Yearley said last week. In addition to Irvine, the builder had big projects under way in at Lake Forest’s Baker Ranch community and in Yorba Linda.
Models are open at projects there, and the Yorba Linda models have similar designs to some of those at Vistas at Orchard Hills, which has helped sales for the latter project.
The builder has tried some other notable approaches to selling at the Orchard Hills community prior to the opening of models, including offering helicopter rides to prospective buyers to scout lot locations.
“Orange County is benefiting from a significant premium in pricing to L.A. County,” Yearley said. “That means land prices have been driven up, but what’s happened there is, there are great schools. It’s a great lifestyle.”
National Trend?
The recent model-free community launches with apparent sales success give further credence to Irvine’s stature among local and foreign buyers as a can’t-miss location.
That said, OC, currently home to four of the country’s 25 best-selling master-planned communities, might not be the only place where builders are prioritizing jump-starting sales while the market is hot, over completing on-site models.
Recent financial disclosures by OC’s stable of publicly traded builders suggests that showing off a series of elaborately furnished, decorated and upgraded model homes at a new housing community isn’t necessarily on top of their priority lists this year.
Irvine-based CalAtlantic Homes, the largest OC-based builder, with a market value of $3.7 billion, said the value of its companywide inventory of model homes declined from $506.9 million to $457 million from the end of last year to the end of this past June, a nearly 10% drop.
The model homes inventory of Newport Beach-based William Lyon Homes, which has a $720 million valuation, fell 5.6% to $101.2 million over the same period.
New Home Co. in Aliso Viejo, valued at about $225 million, had a nearly 43% decline in model inventory value over the six-month period, dropping to $32 million.
The drops come during one of the strongest new-home selling periods since the last recession. Sales rates and pricing have shown solid growth over the course of the year, particularly in Southern California, a key market for each firm.
Among OC-based builders, only TRI Pointe Group Inc. in Irvine saw an increase over that period, the value of its model home inventory rising 22% to $188 million.
TRI Pointe, whose market value is about $2 billion, has been working to increase the pace of its large community openings and development along the West Coast this year after facing criticism on that front from a former large investor.
Neither Toll Brothers nor Lennar, which operates much of its day-to-day business out of Aliso Viejo, broke out the value of their model home inventories in their latest quarterly earnings reports.
‘Insurance Policy’
For New Home Co., which sells many of its homes in OC, the drop in model inventory in the first half of the year appears to be tied to the recent sellout of two neighborhoods in Newport Beach’s Crystal Cove community, where it had more than $30 million tied up in six luxury model homes it built there.
Having models ready to show off from day one is a core part of the builder’s strategy, said New Home Chief Marketing Officer Joan Marcus-Colvin.
In general, “I never like to say, ‘We’re open for presale,’” she said. “We will always build models; it’s an insurance policy for us.”
New Home was one of the builders showing off models at this month’s event at Eastwood Village, for its Morro collection of homes, which are about 3,500 square feet and have starting prices beginning around $1.5 million.
Marcus-Colvin said she believes her firm’s models, aided by interior design firms like Meridian Interiors in Irvine and Costa Mesa-based CDC Designs, provide a competitive advantage, especially for homes with higher price points.
“We deal primarily with move-up and higher-end buyers who already own homes,” she said. In order to generate sales, “We’d better make them fall in love with the home.”
There are still times when “a quiet presale” can make sense, especially for public builders trying to maximize cash flow and shorten their cycle times for new projects by three to six months, she said.
In Irvine in particular, prospective homebuyers tend to be savvier than in markets where new home openings are less numerous, which can eliminate the need for models opening alongside the start of sales in some cases, Marcus-Colvin said.
New Home Co. has a new offering at Orchard Hills called Lucca, which opened for sales this summer but whose models won’t open until early November.
In Brea, it just began marketing the 80-unit Agave condo project at the La Floresta development for people ages 55 and older. The project, which will feature homes ranging from 1,379 square feet to 1,726 square feet, will have models open in late October.
