Big developers take long-term view, hoping slump wanes as projects end.
By MATHEW PADILLA
The Orange County Register
Wednesday, November 1, 2006
Talk about bad timing.
Just as homebuilders start on three of the most ambitious redevelopment projects in Orange County's history, the housing market deflates.
What's a builder to do?
The answer could have big implications for cities such as Irvine, Santa Ana and Anaheim, which need more housing for their workers. In a worst-case scenario, builders could abandon or delay projects.
On the other hand, what's bad for builders could be good for homebuyers. A glut of homes hitting the market amid a slump could mean bargain-basement prices.
Builders, publicly at least, aren't panicking.
Emile Haddad, chief investment officer of Lennar Corp., said the company never tries to play the housing market. Lennar is spending more than $1 billion to redevelop the former El Toro Marine base and is redeveloping large sites in Tustin and Anaheim.
"I can't speak to the housing shift," Haddad said. "I don't know how deep or long it's going to go."
Haddad said Lennar is planning communities that it will build over the next decade or longer. One key is to plan a variety of home types, he said.
"So you don't end up with a glut of product that's all the same nature, same size or price," Haddad said.
Builders such as Irvine's Standard Pacific Corp. said in releases that they are cutting back on their land holdings for future development. But so far no one expects builders to scrap major projects in Orange County.
Lennar and other builders have a lot riding on the fate of the three biggest redevelopment projects: El Toro, the former Tustin Marine base, and the Platinum Triangle in Anaheim.
They're investing billions of dollars on plans to build 19,582 houses, condos and apartments, including a few hundred for sale now in Anaheim. That's in addition to about 2,000 homes Lennar and William Lyon Homes are developing in Tustin, with some for sale now. They've offered incentives to entice buyers.
And there's more. Since the plan for a commercial airport at El Toro was scrapped, developers have proposed thousands of housing units around the base.
Of course, perhaps in answer to builder prayers, the housing market could rebound by the time Lennar and others start selling homes. The first big wave of homes from redevelopments should hit the market in 2008, builders say.
There's a 50-50 chance the market will still be in the doldrums in 2008, said Edward Leamer, director of the UCLA Anderson School of Management's annual economic and housing-market forecast.
"We expect to see a sluggish, problematic market for a considerable number of years," Leamer said.
He added, "A critical question is what happens to mor*gage rates. No one really knows until 2008."
Yet other experts are more sanguine about Orange County's housing market.
Jack Kyser, chief economist with the Los Angeles County Economic Development Corp., which tracks Orange County, said economic fundamentals are solid for all of Southern California.
He said redevelopment projects are better insulated from a downturn in housing than ones in less-developed areas. They are closer to jobs and services, as well as the friends and families of buyers, he said.
Still, each project will live or die on its own, he said.
"Something as complicated as the Platinum Triangle or Great Park, these have longtime horizons," Kyser said. He said regardless of short-term shifts, the big projects will go forward.
Yet government data suggest the rate of population growth in the county has steadily declined since 2001. From 2000 to 2001, the county added people at a rate of 1.3 percent, according to U.S. Census Bureau data.
Last year, the rate fell to 0.2 percent, or about 6,000 people.
There is another key issue with redevelopment projects, experts say.
To make sense financially in an area of high land prices like Orange County, developers pack as many homes in the projects as the market will bear. Translation: condos.
Plans for the Platinum Triangle, for example, are dominated by condos and apartments, including high-rises.
Orange County may already have more condos than buyers, said economist Kyser.
"The Orange County condo market has been fingered as one of the areas where there have been speculators," Kyser said. "With some of these projects where construction has started, there may be some disappointments."
He said condos are the last type of home to take off in a rising market and the first type to tank. Indeed, there is some evidence of condo softening.
Condo sales were down 40 percent for the 22 business days ending Oct. 12, compared with a year earlier, market tracker DataQuick said. The median condo price slipped 3.3 percent to $445,000.
Irvine-based developer Sares-Regis Group recently held an auction for its condominiums in Aliso Viejo. The company converted them from apartments and sold them for less than originally planned.
Veronica Hicks, a broker with Condos etc. in Irvine, said buyers today are reluctant to pay the deposits housing developers want to start construction.
"When people were buying much of the new housing that is being completed today, it was a very different market," she said.
Still, people prefer new housing, and many buyers like the easy-maintenance lifestyle of condos, she said. Typical buyers, especially at the new high-rises, include couples without children and baby boomers.
She said owners of existing condos could face the real difficulty selling when new homes hit the market.
Owners with older condos will "have to dump a lot of money into the condos just to sell them," Hicks said.
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A former Marine air station is making way for homes, shops and offices. Redevelopment of the base's core, which will be centered on a large park, is starting now, but other work is already done.
Homes and apartments: 2,105 in the base's core.
Acres: 822, of which 185 are for housing
When: Homes should be for sale in mid-2008 at the base's core. Other homes are for sale now along the base's perimeter.
It's really a series of connected redevelopment projects that are replacing older office and industrial buildings with homes and shops.
Homes and apartments: 7,977
When: The first project, Stadium Lofts, is for sale now. The biggest projects, planned by Lennar Corp., will hit the market in late 2007 or early 2008, at the earliest.
A former Marine air base is giving way to a series of parks, marketed collectively as the Great Park, as well as homes, shops, offices, golf courses and attractions.
Homes and apartments: 9,500 are proposed by Lennar Corp.
Acres: Entire redevelopment covers about 3,700 acres of which 1,347 acres are for the Great Park. Lennar proposes to give the city 402 more acres in exchange for rights to build 5,875 more dwellings, bringing the total to 9,500.
When: First homes could be for sale in 2008.