National builders have their eyes on Orange County again.
Publicly traded homebuilders with operations based outside OC have been involved in some of the area’s largest land deals over the past year and a half. They’ve spent more than $500 million to buy notable land development sites, not to mention hundreds of millions of dollars worth of lots in other development sites, from Irvine to San Clemente.
Their combined investments in land here are the most by builders from outside OC since 2005, when Miami-based Lennar Corp. made a series of blockbuster land buys in Irvine and Anaheim to get a foothold in the county’s then red-hot housing market.
This time companies such as Toll Brothers Inc. and—if recent reports prove accurate—Taylor Morrison Inc. are among the largest national builders homing in on OC.
The deals the out-of-towners are making will give them a strong land position in expectation that the resurgence of the housing market will continue over the next few years.
“We [are] confident about the market and confident about Orange County,” said Seth Ring, president of the Southern California operations of Horsham, Pa.-based Toll Brothers, which has spent some $2 billion on local land buys and a regional builder acquisition since 2012.
The resurgent activity of national builders, which have recently outbid OC-based homebuilders for several prized local assets, echoes much of what’s happening on a micro level in OC’s housing market, where nonlocal buyers have lately aided sales. A good deal of high-priced coastal activity is being driven by out-of-town buyers looking for second homes and investments and by foreign buyers, primarily Asian, snapping up the majority of new homes going up in Irvine, OC’s busiest new-home market.
Upward Market
The biggest difference between Lennar’s 2005 buys and the latest transactions: timing. Lennar, which runs much of its homebuilding operations out of its Aliso Viejo office, made its purchases at the former El Toro Marine base in Irvine and in the Platinum Triangle region in Anaheim around the peak of the last housing cycle.
Builders doing the buying this time say they’re convinced the market continues to be on the upswing.
“We believe the economy is still in recovery, and [we] need to ensure that we keep suitable land in the right locations in front of the business in order to move future demand,” said Sheryl Palmer, president and chief executive of Scottsdale, Ariz.-based Taylor Morrison.
Palmer this month told analysts that the company expected to spend more than $1 billion on land acquisitions and development across the country this year. If news reports prove true, one of its largest deals will be in OC, where it has recently been ramping up projects.
Industry sources indicate the company is in final negotiations to buy the long-delayed Marblehead coastal housing development in San Clemente.
Lehman Brothers Holdings Inc. late last year listed the 195.5-acre development site for sale to prospective homebuilders. It sits just west of the San Diego (I-5) Freeway and overlooks the ocean.
Taylor Morrison, which bases its Southern California operations in Irvine and ranked No. 5 for OC sales last year (see homebuilder list, page 20) is now believed to be the winning bidder for the site, which is slated to hold 308 high-end homes.
The builder’s bid for the land was expected to be about $215 million, according to the Wall Street Journal, which first reported the imminent deal.
Neither the builder, Lehman, nor brokers with Irvine’s Land Advisors Organization, which has the listing for the sale, have confirmed such a deal is in the works.
The rumored sale implies there’s still room for the market to improve in terms of land prices. The residential portion of Marblehead was valued at more than $300 million prior to the last recession.
Homes at Marblehead are expected to be priced between about $630,000 and more than $3.3 million, officials representing Lehman told San Clemente city officials this month.
Hidden No More
Rivaling Marblehead among recent homebuilder deals is Toll Bros.’ purchase of Irvine Company-owned land for its forthcoming Hidden Canyon in Irvine.
The 250-home development near the Laguna Altura community is expected to open early next year.
Terms of the purchase haven’t been disclosed, but other recent land deals in Irvine suggest Toll paid more than $150 million.
It’s the first time Newport Beach-based Irvine Co. has sold ground for an entire development to a single builder in about 20 years, said Ring of Toll Bros.
“It’s the last great piece of land south of the 405.”
The purchase follows Toll Bros.’ 2012 buy of a 50% stake in Lake Forest’s 372-acre Baker Ranch development, which will have nearly 1,800 homes and more than 400 apartments when it’s built out.
Toll paid $110 million for its interest in the project, which it’s developing with Walnut-based Shea Homes. Shea’s sister company, commercial builder Shea Properties, is based in Aliso Viejo. Baker Ranch held its grand opening this month.
Toll Bros. also got a large chunk of developable local land through its recent $1.6 billion acquisition of the home-building business of Beverly Hills-based Shapell Industries.
Shapell has about 5,200 entitled home lots in California, including several sites in OC, where it ranked No. 13 among builders for OC sales last year.
Master Plan Partners
National builders are also keeping busy with purchases of individual lots at many of the area’s largest new communities.
Taylor Morrison joins Denver-based Richmond American Homes, K. Hovnanian Homes in Red Bank, N.J., and Bloomfield Hills, Mich.-based Pulte Homes among the out-of-state builders involved in the first phase of the FivePoint Communities Great Park Neighborhoods development in Irvine.
The second phase of Great Park land sales to individual builders is expected in early 2015, Lennar Chief Financial Officer Bruce Gross told analysts during his company’s latest earnings call. Lennar is one of the major investors in development at the former Marine base.
Meritage Homes Corp. of Scottsdale, Ariz., and Del Webb, a unit of Pulte, were part of the first phase of sales at the Rancho Mission Viejo development in San Juan Capistrano.
Brookfield Residential in Calgary, Canada, and Taylor Morrison are joining several local builders as part of the first phase of development at Irvine Co.’s Orchard Hills community, which is opening in a few months.
