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Land Prices Up With FivePoint Sales on Deck

Homebuilders are increasing the pace and price of land buys in and around Orange County in a trend that stands to be highlighted by a pending sale that could be one of the priciest deals in several years.

FivePoint Communities Management Inc., the Aliso Viejo-based development manager of Irvine’s 3,700-acre Great Park Neighborhoods project, is expected to announce its first deal to sell parcels of land to individual homebuilders by the end of the year.

The deals for the first 726 homes at the former El Toro Marine base land, made with a half dozen or so different builders, could bring in $200 million or more for FivePoint, based on other recent transactions in and around Irvine.

Deals of that size have been few and far between in OC the past few years, as both public and privately owned builders have shied away from mega-deals amid the choppy housing market.

Now, builders—especially the larger national homebuilders—are seeking out the best properties to build on, and aren’t shying away from paying top dollar for those deals, said Tom Reimers, California division president for land brokerage Land Advisors Organization.

“Public builders aren’t feeling guilty about paying for ‘A’ locations,” said Reimers, whose Irvine office has seen a surge in transaction volume during the past few months.

“Beginning in the third quarter, bidding is up, and buying is up,” said Reimers, who said Land Advisors’ third-quarter’s volume of closed deals almost doubled what the company saw for the prior six months combined.

On a national basis, a strong first half of the year has continued into the latter half of 2012. CoStar Group Inc. reported last week that it tracked $11.9 billion of land sales in the first six months of 2012, a 20% year-over-year increase.

Third-quarter sales also appear to be well above 2011 levels, and it’s expected that 2012 will be the first year since 2005 that the volume of national land sales will increase year over year, according to CoStar’s data.

Recent months have seen a surge in notable land sales in OC.

In June, Horsham, Pa.-based-based Toll Brothers Inc. finalized its purchase of a 50% interest in Baker Ranch, a 387-acre master planned community in Lake Forest that’s expected to hold 1,780 homes and 414 apartments.

Toll Brothers

Toll Brother officials said in August they paid about $110 million for the land, which they are developing in partnership with Walnut-based Shea Homes, and executives don’t appear to be fazed by the price.

Finding parcels of developable land this size in South OC is “pretty much unheard of,” chief executive Douglas Yearley said in August.

Toll Brother’s purchase works out to a price of less than $600,000 per acre, assuming the builder took over a little less than 200 acres of land at Baker Ranch.

That’s on the low end of recent land transactions in South OC.

Land entitled for homebuilding has been trading for more than $2 million an acre on Irvine Company-owned property on the Irvine Ranch and close to $2 million an acre for land further south owned by Rancho Mission Viejo LLC, according to brokerage data.

Irvine Co. this summer sold a 27-acre tract of land at its Portola Springs community—less than a mile from where FivePoint is planning its first batch of Great Park homes—to Los Angeles-based KB Home.

KB Home is believed to have paid about $61 million, or $2.2 million per acre, for the land, which will hold 174 homes. It’s the builder’s largest investment in Irvine to date, and it came in a sellers’ market.

“While there’s no question the housing markets are getting better, the land sellers figured it out first,” KB Home chief executive Jeffrey Mezger told analysts near the time the deal was announced. “Land prices are going up every bit as fast, if not faster, than home prices are.”

Pricing in OC has continued to rise throughout 2012, according to Mike Hunter, a senior marketing consultant at Land Advisors Organization and one of the area’s most active land brokers.

“Land for apartments is up 50% or more, and residential lots are probably up 30%” since the start of the year, Hunter said.

He said prices for a residential lots 3,000 square feet to 4,000 square feet in size tend to range from $230,000 to $250,000 for land in North OC, $340,000 to $370,000 for land on the Irvine Ranch and just under $300,000 for land further south in the county.

The rise in pricing comes as FivePoint is believed to be nearing deals to sell its first batch of land to builders at the Great Park Neighborhoods. The project currently is entitled for about 5,000 homes, although FivePoint is looking to boost that number closer to 10,700 homes.

726 at Great Park

The land expected to sell later this year is for a relatively small portion of the developer’s land holdings at the former El Toro Marine base, in the northwest corner of the former base near the Portola Springs neighborhood.

The land will hold about 726 homes in a variety of styles, with the first models going up next year. Sales also are expected to start next year.

Toll Brothers officials have expressed interest in buying some of FivePoint’s land, among other large national builders.

Aliso Viejo-based The New Home Co. has said it hopes to be involved in the first phase of the Great Park Neighborhoods project.

New Home Co.’s preference is to take on the priciest homes planned in the Great Park’s first phase, executives told the Business Journal last month.

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Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.

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