If there’s a housing downturn on the immediate horizon in Orange County, someone forgot to tell the homebuilding industry and its land buyers.
OC has seen a surge in blockbuster land deals since the start of 2015 as homebuilders have opened their checkbooks at a rate not seen in about a decade to snap up the area’s remaining large chunks of developable land.
Builders have committed well over $1 billion for the half-dozen largest local land deals completed in that time period for sites where they plan to build more than 2,500 homes, according to Business Journal data.
That figure factors in only land sold to individual builders or joint ventures headed by a few companies, not phases of larger developments sold to large groups of builders, such as Beacon Park in Irvine or Esencia neighborhoods in Rancho Mission Viejo.
“Large-scale development opportunities remain relatively scarce, but you wouldn’t know it by the recent land acquisition activity,” said Sal Provenza, a partner with Irvine-based Land Brokerage WD Land.
Notable recent deals include:
• Toll Brothers Inc. of Horsham, Pa., and Miami-based Lennar Corp.’s buy of Heritage Hills Irvine, an 840-home upcoming phase of development at Great Park Neighborhoods. The joint venture already has committed $130 million toward the project and estimates the development’s assets at about $478 million;
• The purchase by Landsea Group, a China-based homebuilding company that just opened its U.S. headquarters in Irvine, of Portola Center South, a Lake Forest development site slated for more than 550 homes. CoStar Group Inc. estimates the builder paid $178 million for the 95-acre site, which will be its flagship U.S. development;
• A venture that included Taylor Morrison Inc. paying an estimated $150 million for Pacifica San Juan, a 194-acre development with 318 home lots just off the San Diego (I-5) Freeway and atop a bluff overlooking much of San Juan Capistrano and Dana Point. Construction was delayed by several years under prior ownership.
It’s the second one-time SunCal Cos. development in OC that Scottsdale, Az.-based Taylor Morrison invested in, after the 308-home Marblehead Coastal site in San Clemente, which it bought in 2014 for about $215 million;
• Atlanta-based PulteGroup Inc.’s buy of a 41-acre parcel in the La Floresta development in Brea that will hold a 55-plus community. The land, which will have 267 homes, sold for about $66 million.
The deals “all demonstrate that both publicly traded and private builders remain confident in the strength of the Orange County housing market,” WD Land’s Provenza said.
“We are seeing homebuilders with strong balance sheets and the desire to deploy significant cash acquire large-scale infill development opportunities.”
‘Amazing Properties’
Orange County has always been a key market for national builders, so the recent activity isn’t so much a shift in the companies’ strategy as a confluence of supply and a good economic outlook, said one local building executive.
“First, there were some pretty amazing properties that came on the market,” said Larry Webb, chief executive of Aliso Viejo-based The New Home Co.
“Second, most builders believe we still have (a) ways to go” before the next housing downturn, Webb said.
“We might be about halfway through (the current cycle).”
New Home Co. made one of the area’s largest land deals last year, paying Newport Beach-based Irvine Company about $250 million for more than 200 home sites in Irvine and Newport Beach.
The first new project from the deal came to market last weekend as New Home Co. opened Cressa, a 95-home project that’s part of Irvine Co.’s latest phase of development at the Portola Hills neighborhood in Irvine.
Homes at Cressa run from 2,440 to 3,021 square feet and are priced starting around $950,000, “a little more affordable for us than some other (local projects),” Webb said.
More expensive homes from last year’s land deal will come to market this April as New Home Co. kicks off sales at a pair of projects in Irvine Co.’s Crystal Cove development in Newport Coast. It will be the first multihome development in the hills above Crystal Cove State Park since the recession.
Those two New Home Co. projects will have homes as large as 6,000 square feet and command prices above $4 million.
“We just think the demographics are really strong here, and the land is relatively constrained,” said Webb, who previously ran Irvine-based John Laing Homes.
If a builder has the opportunity to grab a notable land site in OC, “then go for it,” he said.
Early in Cycle
Builders might have more time in the current cycle to get their new land sites developed, built and sold than most expect, said Mike Hunter, senior marketing consultant with Irvine-based land brokerage Land Advisors Organization.
“We’re still really early in this (cycle),” said Hunter, noting that OC’s housing market didn’t really begin to ramp up until 2012 following the last downturn.
Land Advisors has been involved in some of the larger transactions of the past two years, including the sales of Marblehead Coastal and Pacifica San Juan to Taylor Morrison. The land brokerage also marketed the Portola Center South site in Lake Forest for that property’s seller, a venture between Newport Beach-based Baldwin and Sons and Sunrise Co. in Palm Desert.
Irvine’s growth into a regional job powerhouse and Irvine Co.’s role in turning the city into one of California’s most desirable places to live, means that any notable land sites coming to market in or around the city “will get gobbled up” by developers and homebuilders, Hunter said.
“It’s one of the best markets in California.”
A handful of sites in the area should test that theory this year, according to industry watchers.
Among the largest sites that could be put up for sale: Serrano Summit, an 82-acre site on the Lake Forest-Irvine city line.
The land is currently owned by the Irvine Ranch Water District but could be developed for more than 600 homes.
