Orange County’s real estate market looks likely to continue its scattershot approach to recovery in 2012.
Apartments appear poised to make the largest gains next year in terms of commercial development, with several thousand multi-family units in the process of moving ahead across the county, especially in Irvine.
Vacancy rates at larger apartment complexes in OC run about 4.5%, and are expected to fall even further next year, according to market reports. Rents at these complexes should continue to increase from monthly averages of nearly $1,500 per apartment.
Speculative development could see some inroads next year in the industrial market, which also counts low vacancy rates and has been seeing some rent appreciation for higher-end properties.
Developers
A few area developers are said to be eyeing land deals in OC for midsize warehouse and distribution facilities.
Any development that moves forward in the office market in 2012 is expected to be tied to specific tenants, such as Newport Beach-based Pacific Investment Manage-ment Co., which has a new 20-story tower moving ahead in Newport Center, with the Irvine Company as developer and landlord.
Market watchers are keeping an eye on Irvine-based Blizzard Entertainment Inc., which is said to be considering building a headquarters complex locally that could run to almost 1 million square feet. That would be the largest office project OC’s seen in years—if it goes ahead.
It’s expected to remain a tenant’s market for existing office space in 2012. Vacancy rates remain in the mid- to high-teens, according to brokerage data.
Landlords’ efforts to retain existing tenants, or land new ones, should keep rents largely flat for a majority of the area’s office market.
It’s still a wait-and-see environment for large-scale housing projects, although there’s more optimism now than at any time in the past five years for some notable projects.
Early-Stage Work
2012 is expected to see some early-stage infrastructure and road work begin at two of the largest developments that have stalled during the recent downturn, Tustin Legacy and Great Parks Neighborhoods in Irvine.
For the homebuilding industry, OC will continue to see its share of innovation from builders based here in 2012.
“California Rooms” and other open-space designs have helped bring strong sales for Irvine Pacific LP’s projects on the Irvine Ranch; Ron Simon’s The New House by RSI is pushing new manufacturing techniques at its developments; and Santa Ana-based City Ventures LLC is among the country’s leaders in eco-friendly, green-design homes that cut electricity bills for homeowners.
PERSON TO WATCH: SCOTT STOWELL
The housing market might not have turned around, but the helm of Irvine-based homebuilder Standard Pacific Corp. is changing hands from a turnaround specialist to one of the company’s longest-serving veterans.
Standard Pacific, the largest homebuilder based in Orange County, announced in September that Scott Stowell—Standard Pacific’s current president and an employee since 1986—will take over the chief executive role at the beginning of 2012.
Stowell replaces Ken Campbell, a turnaround specialist brought on board a few years ago when Standard Pacific was near bankruptcy.
Standard Pacific bottomed out with a $1.2 billion loss in 2008, but has flirted with profitability for the past year-and-a-half.
We’ll watch to see if Standard Pacific, which counts a market value of about $630 million—not factoring in preferred stock, which would double that value—makes bigger strides at turning a profit this year under Stowell’s watch.
We’ll also be watching to see if Stowell continues Standard Pacific’s aggressive land-buying strategy of the past two or so years.
—Mark Mueller
COMPANY TO WATCH: WILLIAM LYON HOMES
Newport Beach-based William Lyon Homes hopes that a forthcoming restructuring plan will put the iconic builder on much more stable financial footing than it has been in the past few years.
The builder said in November that it had struck a deal with lenders and bondholders that will sharply reduce its near-term debt while raising nearly $85 million in cash for operations. That plan requires William Lyon Homes to file for bankruptcy with a prepackaged plan of reorganization in order to get its debt reworked. That filing had yet to occur as of press time.
The builder’s financial troubles represent another notable chapter in the company’s history. William Lyon Homes and its predecessors have sold some 72,000 homes since 1956, becoming one of the better-known builders on the West Coast over that time.
We’ll be keeping an eye on the builder as it works to get its financial house in order, and if it moves ahead on any large projects planned in OC and elsewhere over the next year.
We’ll also be watching to see if there are any other shake-ups for the company—management-related or otherwise—as a result of the restructuring.
The restructuring plan calls for Gen. William Lyon, the builder’s cofounder and chief executive, to invest $25 million into the company in return for an initial 20% stake in the recapitalized company.
—Mark Mueller
