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Monday, Sep 26, 2022

FivePoint Eyes New Uses for Great Park Land

Commercial potential for 200 acres

Dan Hedigan is settling into his new C-suite role at Five Point Holdings LLC (NYSE: FPH) with plans to kick off a new phase of commercial efforts at Irvine’s Great Park Neighborhoods.

During his second earnings call as CEO of the Irvine-based master developer that operates under the FivePoint name, Hedigan shared insight into how the company aims to “continue our work on development plans for the 23 million square feet of planned commercial opportunities in our three communities, with an active focus on Great Park and Valencia.”

FivePoint is working with brokerage CBRE Group Inc. to strategize the listings of “large contiguous blocks of land” for commercial developers for a variety of uses, he said.
“We want to be sure we’re really going to maximize the value across all of our assets,” Hedigan told analysts this month.

It’s the latest hint of a major mixed-use diversification push for the Great Park Neighborhoods, which last month unveiled the first phase of its partnership with City of Hope Orange County, the Orange County Lennar Foundation Cancer Center.

“We think our values are very competitive with what folks are seeing in this area in the industrial side. But that’s only one use. We have incredible synergy with City of Hope there now,” Hedigan said on the August 2 call. “So, we think there’s a lot of opportunities, and we’re trying to be very strategic to really maximize our income.”

The developer currently has entitlements for some 4.9 million square feet of commercial development in its hometown.

Capitalizing on Trends

City of Hope paid $108 million for the office building and land for its new Irvine campus from FivePoint in 2021.

FivePoint is likely to generate more value from future deals, as “the market has moved in our favor,” Hedigan said.

He notes that the master-planned community counts some 200 acres of land available for commercial development, “and industrial properties today in parts of Southern California are going between $5 million and $7 million an acre.”

Other uses expected to be considered include multifamily, healthcare, office and retail.
“We have very flexible zoning in our commercial properties, which is a very unique attribute,” Hedigan said.

Land Opportunities

Future land listings in Irvine could represent big opportunities for commercial investors who have struggled in recent years to find land for development.

Many—specifically industrial and multifamily investors—have been active in conversion strategies, in which underutilized office, retail or hospitality properties have been sourced for new development projects.

The Great Park Neighborhoods offers “something that has not been available for years, large parcels of entitled land with flexible entitlement, which can offer a multitude of uses, including life sciences, R&D, office and industrial,” Hedigan said.

“A majority of these commercial parcels are near City Hope’s new cancer treatment facility and future dedicated cancer hospital, which broke ground last week, a perfect use to support a strong life sciences market,” he added.

“These unique attributes create a great opportunity for the Great Park Venture.”
Hedigan hails from California’s best-known proponent of the work-live-play ethos in its community development, Newport Beach’s Irvine Co., where he previously served as president of land sales and homebuilding.

He referenced his former employer in the earnings call, noting that Irvine Co. properties are FivePoint’s “neighbor on many sides.”

“Their commercial development spectrum kind of ends where our property starts, so there’s been a natural market created in that area. And the Irvine Co. hasn’t sold large blocks of land in a long time.”

FivePoint isn’t expected to list these large blocks of land at one time, with the company strategizing the timing of the listings in order to maximize income.

“We’re in active conversations where we are kind of sizing what we think the market will take right now,” Hedigan said.

Homesite Sales

On the residential front, FivePoint didn’t close any land sales in Irvine during the second quarter.

While the company recorded an overall $11 million loss, it has made headway on its goal to do more with less. The firm said it reduced its expenses by 34% over the same quarter last year.

Great Park Neighborhoods—the first of the company’s three mega-projects to break ground, with land sales starting in 2013—totals about 2,100 acres.

It is currently designed to include 10,500 homesites, though FivePoint officials have suggested that figure could ultimately increase, given the state’s need to boost its stock of affordable housing.

FivePoint acknowledged challenges in the housing market caused by inflation and rising interest rates, but it will move ahead with land sales expected to close in the third and fourth quarters.

“As has been the pattern in prior new home sales slowdowns, coastal California holds up better than the inland markets, and that is what we’re seeing at our communities,” Hedigan said.

Builders sold 37 homes at Great Park Neighborhoods during the second quarter, down from 94 homes in the first quarter.

Hedigan attributes that slip to limited inventory of homes for sale at its two for-sale communities, Rise, which has just 22 homes remaining to be sold, and the just-sold Solis Park.

The first model homes at the 849-home Solis Park community opened last month, with the remaining neighborhoods expected to open through September.

FivePoint also began the process for land sales for its next community, currently called District 5-South. The developer is seeking bids from builders for the project, which will include 719 homes across 11 neighborhoods.

“Even with the uncertainty in the market, we received strong interest and have accepted bids on eight of the 11 neighborhoods that were in the offering,” Hedigan said.

The company expects to close 660 homesites this year, down from its original projection of 850 homesites. The remaining 190 homesites will sell in 2023.


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