A long-awaited residential and commercial development planned around the Orange County Great Park is moving ahead despite an uncertain outlook for California’s redevelopment agencies.
FivePoint Communities Management Inc.—the Aliso Viejo-based development manager of Irvine’s Great Park Neighborhoods project, previously known as Heritage Fields—plans to break ground for the first phase of its massive redevelopment project at the former El Toro Marine base this week.
The 3,700-acre project, which has been in the works for more than six years, calls for about 5,000 homes and 1.2 million square feet of shops, offices and other commercial development to be built in its initial phase.
The build-out of the first phase of the project could last 10 years and eventually run concurrently with an additional phase of development on the eastern portion of the former base, depending on market conditions.
Expect to see a heavy dose of infrastructure work—streets, sewers, drains, and other backbone work—move ahead in earnest this year, FivePoint Chief Executive Emile Haddad said.
The plan is to shape up land slated to hold about 720 homes—starting in the northwest corner of the former base, near Irvine Company’s Portola Springs neighborhood—so it can be sold to individual builders by the end of the year.
Infrastructure Upgrades
Haddad said 2012 will be “the year of land development.” The first homes should be ready for sale in about 18 months.
FivePoint expects to spend about $150 million for infrastructure improvements that will also benefit the planned 1,300-acre Great Park, much of that during the next year.
“I don’t know of another development of this size starting in the last six years,” Haddad said during a media briefing last week. “For people wondering whether this (project) will be built or won’t be built, this answers the question.”
Haddad has faced plenty of challenges getting the housing portion of the project off the ground. He dealt with a slumping housing market and also had to find a new financing partner after Lehman Brothers Holding Inc. went bankrupt in 2008.
Miami-based Lennar Corp. bought the former base in 2005, borrowing $775 million from Lehman and getting another $700 million in equity from investors including Michael Dell. FivePoint, which is majority-owned by Lennar, took over management of the development in 2009.
Boston-based State Street Bank & Trust Co. was brought on as a new financial partner for the project at the end of 2010, replacing Lehman. Old debt was refinanced, and the project also got a new influx of capital from its investors.
Funding issues for the privately run redevelopment portion of the former base have been settled. Now issues with state and local officials over their funding sources are the Great Park project’s latest challenge.
Cost-Cutting
About a year ago, when FivePoint filed plans with the city of Irvine for the first phase of its housing project, Gov. Jerry Brown announced a cost-cutting plan to eliminate the state’s long-standing redevelopment agencies, or RDAs. The cuts would include an Irvine agency that was expected to raise nearly $1.5 billion for the development of the actual Great Park component of the former El Toro base.
Tax revenue from home sales at the Great Park Neighborhoods also would be used to fund the actual park’s development.
It’s unclear how Irvine could raise the balance of Great Park funding without the local redevelopment agency, though city officials have signaled options without providing specifics.
A state Supreme Court ruling recently upheld the governor’s plan, which is slated to become effective Feb. 1, barring last-minute legal rulings. Lingering legal challenges could push back that date or potentially put the Supreme Court’s ruling on hold. For the time being, many cities’ redevelopment plans in legal limbo, said Dan Slater, a partner in the government and regulatory law section of Costa Mesa’s Rutan & Tucker LLP.
“We can anticipate, if there’s not a stay and the RDAs are dissolved, that there will be vast confusion on the details of implementing the dissolution, because the bill was written so badly,” he said.
Funding Team
Slater is part of team at Rutan that’s working with 10 Southland cities and their redevelopment agencies, including those in Placentia and Cypress, to help save their sources of funding.
Haddad, whose company is monitoring the RDA situation, said he had conversations with the governor about the situation.
“He said there were a lot of unintended consequences” of his decision, Haddad recalled. “We’re still trying to figure out what it means.”
Haddad said the loss of RDA funding could prompt the city to scale back or change its Great Park plans.
“We’ve gone through a lot of tough situations” with the city, Haddad said. “The good news is that this is a very strong public-private partnership. This partnership will find a way to get the park built.”
