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Tuesday, May 28, 2024

FivePoint CEO Hedigan: OC ‘Holding its Own’

Sales down in Irvine in 2022

  1. Five Point Holdings LLC’s (NYSE: FPH) $240 million sale of commercial land late last year to TGS Management LLC provided a welcome bottom-line boost for the Irvine master developer heading the Great Park Neighborhoods.

In the newest sign of the Irvine-based company’s renewed commercial efforts, FivePoint has submitted plans for a grocery-anchored retail center at the corner of Ridge Valley and Great Park Boulevard, a few blocks from Sand Canyon Boulevard.

FivePoint is currently marketing the site “to experienced retail developers who are skilled at constructing and operating these types of retail centers,” CEO Dan Hedigan told the Business Journal.

It would mark the first major retail project on FivePoint’s land in Irvine.

These continued diversification efforts come after a rocky year for Orange County’s residential market, during which two of the county’s three largest master planners—FivePoint and Rancho Mission Viejo—reported a drop-off in home sales from years prior.

Including the Irvine Ranch—which includes Irvine Co.-overseen new home developments in the county—local neighborhoods from the three master planners were noticeably absent from a ranking of the country’s largest master-planned communities from Irvine’s John Burns Real Estate Consulting. It’s the first time since the Great Recession that a project in Orange County didn’t make the annual ranking.


Bullish on OC

“A limited supply of available homes during most of 2022 combined with a higher interest rate environment resulted in a reduced number of homes sold by builders,” FivePoint said in its annual report, filed on March 6.

FivePoint reported 326 home sales on its Irvine land in 2022, down 50% from 2021. It also sold 61 homesites to builders on approximately three acres of its land last year.

Since starting housing development on the project in 2013, FivePoint had sold 7,326 homesites in total by the end of 2022.

Despite last year’s buying slowdown, Hedigan is bullish on the OC market, specifically following positive sales volume in the first few months of 2023.

“From our perspective, the demise of the residential for-sale market has been overly exaggerated. The current residential real estate market, in Orange County and particularly in Irvine, is holding its own,” Hedigan said. “Our latest community within Great Park Neighborhoods, Solis Park, has seen double-digit sales for several weeks in 2023.”

Sales in the 849-home community “should be complete by the end of the year,” Hedigan said.

At the company’s Valencia development in Los Angeles County, sales have been steady for the initial 1,268 home offerings, Hedigan said, with fewer than 300 homes available in the first phase. The community ranked No. 17 on the John Burns list, which was topped by three Florida communities.

“It’s proof positive that housing is still in short supply and there is continued demand for new homes in desirable markets such as Irvine and Valencia,” Hedigan said.

Builders are inquiring about the next phases of Great Park Neighborhoods, which is currently entitled to include 10,500 homesites.

“There’s an old saying: a homebuilder without land is not a builder,” Hedigan said. “Builders are beginning to contemplate where the next lot is coming from, especially in a land-constrained area such as Irvine.

“Having an ability to have entitled and finished lots is a luxury. For those reasons, we are optimistic that land sales will resume this year and continue into next year.”


Rancho Mission Viejo

This year is also expected to be a more active one for Rancho Mission Viejo, the largest master-planned community in South Orange County.

“The overall buyer sentiment is that things are certainly trending in a positive direction,” President Jeremy Laster told the Business Journal. “We have seen many buyers who have been engaged for quite some time and believe that now is a good window to buy a home.”

There were 311 home sales at RMV last year, all of which occurred at Rienda, the latest village that will ultimately total nearly 1,500 homes.

The first, 671-home phase of Rienda opened last April and is nearly 60% sold out. Sales began early this year for the second, 279-home phase, and the final 514-home phase is expected to come online later this year.

Newport Beach-based Trumark Homes, Nevada-based Tri Pointe Homes Inc. (NYSE: TPH) and Miami-based Lennar Corp. (NYSE: LEN) are the builders for the latest phase, which includes four neighborhoods. Lennar is building two 55+ neighborhoods totaling 145 homes, with prices starting in the $700,000s.

Homes in RMV start in the $500,000s, with “a good portion of the attached townhomes in Rienda geared towards first-time homebuyers,” Laster said.

“With rent being at an all-time high, many first-time homebuyers are recognizing the importance of homeownership regardless of higher interest rates,” he added.

The lack of available land in Orange County has helped to maintain strong pricing throughout the downturn, local executives tell the Business Journal.

“People want to live here, and builders want to build here so while deal structures are certainly getting more creative, inflationary pressures on construction inputs have lessened, and gross pricing has held up well during 2023,” Laster said.


Less Uncertainty

Some builders have made pricing adjustments to homes in recent months, FivePoint’s Hedigan said, prompting a stabilization in sales volume.

“Now that much of the uncertainty around pricing is dissipating, we are optimistic builders are comfortable moving forward and ready to buy land again,” he added.

Irvine Co. declined to share 2022 home sales figures, but market tracking firm Zonda Home indicates the company’s in-house homebuilder, Irvine Pacific, sold 468 homes in Orange County last year, a 5.6% increase over 2021 (see story, page 24).

Irvine Co. is doubling down on the apartment front, with plans for 4,500 apartments across six sites in Irvine. It’s a jump from the 2,500 apartments the Newport Beach-based company had on the books as of last summer, and is a response to the city’s need for more affordable housing—20% of the new units will be reserved for families making $40,000 to $120,000 per year—and resident demand for new homes within walking distance to job centers.

The first of the projects to move forward will be the first-ever housing project totaling 1,261 units on the grounds of the Irvine Market Place; the proposal will head through the city planning process in early summer. For more on Irvine Co.’s apartment plans, see next week’s Business Journal print edition.


Courting Commercial

FivePoint’s commercial efforts are expected to take further shape in 2023.
Plans for the new retail center, the developer’s first in Irvine, are in the early stages—the company submitted a master plan to the city in February—though other developments are in the works for the approximately 160 acres of FivePoint-controlled land that largely surrounds the city-run Great Park.

“Our commercial parcels offer to the South County market something that’s not been available for years—large parcels of entitled land with flexible zoning that allows a multitude of uses, including life sciences, R&D, office and industrial, among others,” Hedigan said.

He declined to comment further on last year’s deal with Irvine-based quantitative hedge fund TGS and any future deals in the works, but real estate sources have told the Business Journal that several industrial developers have put in bids to acquire a 31.9-acre site that FivePoint owns, which could include four buildings totaling 547,092 square feet, ranging in size from 62,256 to 199,028 square feet.

A third and final site is also said to have several offers from industrial developers and occupiers. That 6-acre site is currently envisioned to include a single industrial building spanning 116,568 square feet.

Commercial holdings in the Great Park Neighborhoods include City of Hope’s planned $1 billion cancer research campus and the FivePoint Gateway office complex home to the local base of Broadcom and others.

Hedigan pointed to ongoing efforts by the city to “activate new elements within the
adjacent Great Park,” such as a botanical garden, library, museums and a permanent amphitheater replacing the temporary one that has been in place since 2017.

“These planned features in the ‘heart of the park’ will add another level of differentiation and complement their existing amenities, such as the 175-acre multi-sports complex and neighboring water park,” Hedigan said.

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