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Monday, May 27, 2024

FivePoint Taking Bids For Commercial Land

80 acres in Irvine being marketed for sale

Five Point Holdings LLC (NYSE: FPH) is in negotiations with multiple commercial developers to sell nearly 80 acres of land it owns in the Spectrum area of Irvine, for industrial and other projects that could approach 1.5 million square feet of space when built out, real estate sources tell the Business Journal.

The projects, if they move ahead, would be among the largest new commercial developments in the city in years, outside of those helmed by Newport Beach’s Irvine Co.

Given recent pricing for developable land in and around Irvine for new industrial projects, the trio of sites could bring in over $400 million for the Irvine-based master developer that operates under the FivePoint name.

Such deals could provide a good dose of short-term cash for the company, which is preparing for a slowdown in home development on land it owns in the city (see story, this page).

Real estate sources note that no deals have been announced to date, and economic conditions could impact the timing, pricing, and commercial product types built on FivePoint’s land.

Spectrum Location

FivePoint Chief Executive Dan Hedigan confirmed during an Oct. 27 earnings call that his company was “actively marketing” about 80 acres of commercial land at the Great Park Neighborhoods, but didn’t specify details of those plans.

Marketing documents provided to the Business Journal show that a trio of currently vacant sites, now seeing some early groundwork move ahead, are listed for sale. The sites are near the intersection of the San Diego (405) and Santa Ana (5) freeways, along both sides of Bake Parkway.

The sites, previously used for farming, are just south of the 1-million-square-foot FivePoint Gateway office campus that now holds the growing Irvine medical campus of City of Hope, where work is now well underway for a new cancer-focused hospital.

The developer currently has entitlements to build some 4.9 million square feet of commercial space on land it owns in Irvine.

Pricing Questions

The Great Park Neighborhoods community counts about 200 acres of land available for commercial development. Hedigan told analysts in midyear that such land opportunities were trading to industrial developers for between $5 million and $7 million an acre. An update on pricing wasn’t provided during the company’s latest earnings call late last month.

“With historically low vacancy rates and industrial properties, coupled with record rent growth and a limited supply of undeveloped land, we remain confident that these offerings will garner interest in our markets for not only industrial uses, but for other uses as well,” Hedigan, referring to the company’s land in Irvine and in the Los Angeles County community of Valencia, told analysts late last month.

Several factors could impede pricing from hitting the high end of the $5 million to $7 million range, such as a looming recession, rising interest rates and a potentially tricky entitlement process to zone the land for industrial, brokers note.

Site Plans

FivePoint is working with CBRE for sales of the three sites, which include a 42.1-acre site, a 31.9-acre site and a 6-acre site.

A large occupier is said to be in negotiations for the largest site, which could accommodate nine buildings totaling 721,308 square feet, according to a site plan obtained by the Business Journal.

Those buildings, as initially designed by Irvine architecture firm Ware Malcomb, could range in size from 26,700 to 131,086 square feet.

Sources tell the Business Journal that several industrial developers have put in bids to acquire the 31.9-acre site, which could include four buildings totaling 547,092 square feet, ranging in size from 62,256 square feet to 199,028 square feet.

The 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.

The site plans for the three parcels are conceptual and may change depending on the respective buyers and end-users.

Land of Opportunities

FivePoint expects City of Hope’s newly completed comprehensive cancer center and future hospital, which broke ground last quarter, to add to the area’s attractiveness for developers.

“We anticipate that their presence will be synergistic with and create additional demand for users and occupiers in the medical and life sciences market,” Hedigan said.

Future land listings in Irvine could be more tech and healthcare-focused, and 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.

During the third quarter, “the shortage of quality industrial space persisted, and OC business owners remain frustrated by the lack of options,” according to an Orange County market report by Voit Real Estate Services.

Industrial vacancy rates in Orange County fell again during last quarter to 1.05%, down 18 basis points from the second quarter.

Challenging Market Cycle

FivePoint’s commercial land push comes as the developer rethinks its residential land plans amid “what is becoming a very difficult market cycle,” due to rising interest rates and other economic issues, Chief Executive Dan Hedigan said during an Oct. 27 earnings call.

The developer said it expects to close the sale of 253 homesites to third-party builders this year, down from last quarter’s projection of 660 homesites. Future land sales will be pushed back into next year, and possibly 2024, he said.

During the third quarter, builders at Solis Park, the company’s newest community, sold 82 homes, up from 37 homes in the first quarter. Solis Park will hold 849 homes when built out. It has opened several new offerings at Solis Park over the past few months, and the master developer has already begun marketing land to builders for the next community in Irvine, which will hold 719 homes. It’s still selling homes in other existing communities as well.

The open FivePoint communities “continue to sell homes, but at somewhat reduced absorption rates,” Hedigan said.

“We’ll take some time for the housing market to reset on both the homebuyer and homebuilder side of the market,” the CEO told analysts.

“We intend to be patient and to manage our business to the reality of the market at this moment in time.”

At the end of the third quarter, FivePoint had $86 million of cash on hand with available liquidity of $211 million. The firm also has no debt repayment obligations next year or in 2024.

“We’re maintaining our focus on cost management and on increasing cash flow, with particular focus on carefully matching land development capital deployment to residential and commercial land sale execution in order to create more revenue with less cash deployed,” Hedigan said.

“We feel confident that our strong residential and commercial land positions will retain their value,” Hedigan said.

—Katie Murar


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