NEWPORT BEACH – IHP Capital Partners continues to invest in the Midwest.
The Newport Beach-based real estate investment firm and Onyx+East will soon begin construction of an $80 million, 119-home community in Indiana, highlighting how some Orange County real estate investment companies are looking outside the area and California to find new opportunities.
Last month, the company announced its joint venture partnership with the Indianapolis homebuilder and the closing of a 44-acre site in Westfield, Indiana, a fast-growing, affluent suburb just north of Indianapolis.
Richard Whiteley, co-president of IHP, told the Business Journal why the company likes the Midwest.
“Why Indiana?” Whiteley said. “It’s really why this location. The demand is there, the supply is constrained and the fundamentals are excellent.”
Midwest vs. Orange County
The project underscores the stark contrast between development costs in Indiana and those in Orange County and California.
Homes in Indiana can be built more quickly and sold at prices that are still affordable for middle- and upper-middle-income buyers, Whiteley said.
“The housing-cost-to-income ratio in Indianapolis is roughly 25%, versus 40%-plus in markets like the Inland Empire,” Whiteley said. “When land is attainable and the approval process is workable, the math works for buyers and builders alike.”
IHP has focused much of its investment on building homes in Southern California, especially in Orange and San Diego counties.
The company provides equity and works with homebuilders to develop homes.
The firm has completed 44 housing projects in Orange County, with one project, the 185-unit Robinson Ridge in Rancho Santa Margarita, in the entitlement phase.
However, the firm has also invested in cities such as Indianapolis, Cincinnati and Columbus.
Whiteley said these markets offer affordable prices, job growth and limited housing supply—qualities that are harder to find in coastal California. Most importantly, the time required to develop a home in the Midwest versus Southern California is dramatically different.
IHP bought the ready-to-build land in Westfield, Indiana, for about $116,000 to $120,000 per acre.
In comparison, similarly, entitled land in Irvine can take years to approve and costs between $9 million and $12 million per acre.
For example, earlier this year, the Lennar-backed joint venture that purchased the newly re-entitled Von Karman Creative Campus in Irvine for $232 million paid about $9.1 million to $9.6 million per acre.
Last month, Seal Beach-based Olson Homes paid $8.2 million (about $4.3 million per acre) for a 1.9-acre church parking lot in Yorba Linda.
This is all before construction even starts.
Whiteley said the main challenge in expensive housing markets like Orange County is adding more supply.
“The single biggest lever is supply,” he said. “To make attainable housing pencil again in places like Orange County, we’d need faster and more certain entitlement processes, more land made available for housing, and a regulatory and fee environment that doesn’t add hundreds of thousands of dollars of cost before a single home is framed.”
Indiana Project
JV officials said the new Trillium residential development will have homes ranging from about 2,000 to 3,100 square feet, with basements and high-end finishes. Base prices will range from around $630,000 to $856,000.
The site is in Hamilton County, an area Whiteley said is known for strong schools, major employers and steady population growth, all of which keep housing demand high.
The property is adjacent to the nearly completed Chatham Hills golf community.
Though home prices vary, in Orange County, the median active list price is $1.4 million, according to Reports on Housing. The active list price for attached homes such as condos and townhomes is $800,000. Meanwhile, the detached or single-family home median active list price is $2 million.
