Against All Odds
In a time when most real estate projects are either on hold or in bankruptcy, a few have not only moved forward, but are actually considered successful.
If there was a worse job than leech catcher in the last few years, it was homebuilder. With the economy on government-sponsored life support, foreclosures looming in neighborhoods as bulletproof as Corona del Mar and Laguna Beach, and an optimistic news report as rare as a new job, being a developer suddenly seemed like a good candidate for a “The Worst Jobs in History” episode. But somehow, as the world economy came crashing down all around them and a record number of Orange Countians filled the unemployment lines, the Irvine Company and other builders remained bullish on the OC, betting that the news reports were wrong and that that old cliché was true: Build it (well) and they will come. Pundits called it crazy and predicted a disastrous loss.
But a funny thing happened on the way to disaster – the bet paid off. Big.
The Irvine Company’s 2010 New Home Collection
This collection, located in the Irvine villages of Woodbury and Woodbury East, probably represents the biggest gamble this county has seen since treasurer “Vegas” Bob Citron sent us into bankruptcy 16 years ago going short with billions. In this case, the Irvine Company went long on housing with a first phase of 71 homes to market in January of 2010, largely regarded as the worst time for developers.
“Let me take you back to the end of 2009,” says Daniel Young, president of Irvine Company Community Development. “We had already made a commitment to open these models on January 31, 2010 and the news stories were bleak and getting worse.” In fact, the prevailing pundit talk at the time was that the financial collapse would lead to an extended recession, with rising unemployment and falling homebuying. If Chicken Little had a talk show, he’d be considered an optimist. In short, Young’s 2009 Christmas season wasn’t all that merry.
But it should have been, because from the first hour of the 2010 New Home Collection offering, it was obvious Young’s bet on the Orange County homebuyers' resilience was going to pay big dividends. Ten thousand people toured the models. “When I saw that, I knew we had caught a wave,” says Young. By the first day’s end, 70 of the 71 homes on offer were sold.
And the swell continued, even beyond Young’s wildest optimism. “We defined success as selling 650 homes over two years; we ended up selling 800 in one year ,” Young says.
But it wasn’t as easy as it appeared. The success of 2010 was thanks to the hard work of 2007 to 2009, specifically in the area of building few homes while asking homebuyers a lot of questions.
“When the market crashed in 2007/2008, we had a sense that there was more going on in the housing market than just the general economic downturn,” Young says. Young and his team’s sense was that the consumer’s ideal house design had changed, so they did extensive research, including focus groups and surveys with buyers who had bought in the last five years. “We discovered that our instincts were correct and people’s lifestyles had changed but house [design] had not,” he says. “We worked really hard for almost two years to better understand how the lifestyle of folks on the Irvine Ranch had changed and how the house had to change to respond to it.”
Young says the primary theme that came out of the research was that people’s lives were getting busier, so their time at home was more cherished. Specifically that meant some major changes in the way homes were designed. “They needed a home that accommodated electronics and allowed for more entertainment at home. So the size of the family room was insufficient and they didn’t need living rooms anymore. The combination became the Great Room,” Young says. Further, the kitchen – or more specifically, the kitchen island – had taken on new importance. It was a gathering place for cocktail parties by night, a breakfast station in the morning and a place for the kids to do homework after school, so it needed to be much bigger. More natural light and ample storage were high on the modern buyer’s list, too. “They also told us that with our fabulous weather here they wanted the Great Room in the back of the house so they could move in and out from it to the backyard. They really wanted to maximize the fact that they lived in sunny Southern California," says Young. That notion became the California Room, which is an outdoor space open on three sides, with a roof. This room, like the kitchen, was connected to the Great Room. A fringe benefit to the California Room is that it allowed in that extra natural light desired.
Finally, there are no less than 25 floor plan choices in the eight neighborhoods of Woodbury and Woodbury East with prices ranging from the low $300,000s to the low $900,000s.
The experience has left Young fairly optimistic for the next five years. He points to great fundamentals for the buyer: interest rates lower than any time since WWII, combined with the fact that prices are down and quality is up. “Second, although this recession, and what we call the full depression in the housing sector, was worse than anything we’ve seen since the Great Depression [with an annual Orange County supply dropping from an average over the past 20 years of between 10,000 and 15,000 to a few hundred over the past four years], the fact is that we’ve gone almost four years with no home building,” Young says, adding that there has been a population increase in California, there have been people who have graduated college and gotten jobs (yes, they actually exist), and though unemployment is high, there are 90% still working. “So what we have is a looming shortage. A lot of people are going to be looking for a new house and the supply won’t be there,” he continues. “So the next five years should be very good for new home purchasing – interest rates, price, quality. That’s our bet.”
The Park at Irvine Spectrum
It’s a bet the apartment wing of the Irvine Company matched with The Park at Irvine Spectrum apartments. And similarly, they won. “It’s been fabulously well-received,” says Senior VP of Irvine Apartment Communities Ken McCarren. “The first half of The Park is 760 [apartment] homes and even in this incredible recession, The Park is 90% leased after being open only one year. Even in the good times, to lease up a project that quickly would be considered a tremendous success.”
McCarren says they were trying to build an urban environment in what is traditionally a suburban environment. “Irvine, after all, was planned and built as the prototypical suburb and yet there is a certain portion of the population that looks for that urban environment. Obviously, we’re not Manhattan, but we wanted to create a walking environment where residents come home and park their car and don’t need to get back in the car to go out and have a nice time.” McCarren points to the amenities of The Park, which include saltwater pools, fitness rooms, a Spin room, movie theater, and of course, the park. If that’s not enough, walkways lead to the Irvine Spectrum. “So it all creates that urban environment in the middle of suburban heaven,” he says.
But heaven wasn’t built in a day, or even seven. It took years of study and planning. Like Young’s team in the new home division, IC’s apartment side also did their research, with focus groups and purposeful design. The result was a feeling that there were a good amount of Orange Countians who wanted a little more urban in their suburban lifestyles. But nothing was ever guaranteed, and in fact, most pundits again claimed they were betting the wrong side.
“We have been flying against the headwind [of pessimism], but the Irvine Company is devoted to Orange County. This is our home. [We] are in for the long haul,” says McCarren. “We believe that while there are cycles in the industry – and we’re not immune to those cycles – we are very thoughtful in planning how we can lead Orange County out of these down cycles. It takes companies to have courage to go out there and build well-thought-out communities and take a risk. You’re right when you say we’re kind of out there. I’d say we’re out there on a skinny branch because a lot of developers and builders have chosen not to have that much confidence in the county. But this is our home and we believe in it.”
McCarren sees a bright future as well. “We struggle along with the rest of the country but we’ve been here during the great times and we’ve seen the county rebound from other difficult times and we’ll rebound again,” he says. “The economy is cyclical and this is a down time, but we’re optimistic.”
While most retailers across the nation were losing stores, cutting staff and praying that someone somewhere might have some credit left, the people at IC were super frothy for reinvesting in Orange County in the form of a $100 million infusion for the 43-year-old Fashion Island, that began in 2009, with the result being a more European ambiance for the center. To pull that off, Old World Italian street lights and brick paving stones were incorporated, as well as more intimate cafes tucked away into corners, and patio seating. And the piece d'résistance? A hand-carved granite fountain between Neiman Marcus and Bloomingdale’s.
They also built 150,000 square feet of new retail space, amazingly optimistic in these times. But then, just as the best stock traders buy when the market is at its lowest, the Irvine Company grabs opportunities when others are frantically reaching for the ejector seat. “The reinvestment grew out of our long-term commitment and vision for Fashion Island, as well as a strong belief that it will remain one of the most successful and appealing outdoor retail centers in the country,” says Nina B. Robinson, Irvine Company Retail Properties VP of marketing and communications.
3000 The Plaza in Irvine
From utter failure to sky-high victory is one way to describe the phoenix-like rejuvenation of 3000 The Plaza, the high-rise condominium community on Jamboree Road near Campus. Including 105 homes, over 80% have sold for prices that have made 3000 The Plaza the best-selling high-rise community in Orange County’s history. But it wasn’t always looking up for the development. Its developer, Geoffrey Edmunds had to bail out his original partner, Opus, when they went bankrupt, thus rescuing the project from foreclosure. It was a bold move in a time when most said Orange County high-rises were about as attractive to homebuyers as tiny closets. But Edmunds proved them wrong – way wrong. He cites the upscale lifestyle 3000 The Plaza offers, with its rooftop pool, onsite retail and restaurants, and the quality of the 12 floor plans, which range from 1,445 to 2,485 square feet with price tags of $599,500 to $1.9 million. Each home is appointed with Viking appliances, Snaidero cabinets, polished granite, and floor-to-ceilings windows. “Discerning buyers have recognized that 3000 The Plaza, featuring Orange County’s only rooftop pool, is the highest quality and best located residential high-rise community in the region,” says Edmunds, pointing to the fact that three out of four buyers paid cash. All but a few of the 18 penthouses, which offer panoramic views, have sold.
Mariner’s Pointe in Newport Beach
At the corner of PCH and Dover Drive is a small but choice piece of property that has surprisingly not been developed to its potential over the years. Now, former Newport Beach mayor and current developer Tod Ridgeway is moving forward with what he describes as a “very high-end project.” Ridgeway is hoping to get approval for the project by June 2011 and begin construction by October of that year for a grand opening by September 2012. Tenants are already lining up, too. Ridgeway is in negotiations with two high-end “chef-driven restaurant chains out of Los Angeles.” Winston’s Jewelers (the owner of the property) would be an anchor tenant and a salon/spa operation is another strong possibility. As for the economy, Ridgeway is relatively optimistic, believing that although the unemployment rate will remain high for the next few years, things will improve. “We’re not recession-proof but the entities that we're working with are doing well. You have to continue to do business and I think construction costs will still be down next year and by 2012 I think the overall economy will be doing better.” And fans of Mariner’s Mile, which, like the Mariner’s Pointe property, has never really reached its full potential, will find hope in Ridgeway. “We see our project as anchoring new development in Mariner’s Mile and I think Mariner’s Mile is looking at a renaissance coming in the next few years. It’s been a long time coming,” he says.
South Coast Collection in Costa Mesa
In February 2009, developer and property manager Burnham USA bought the notoriously hard to find center (on Hyland Avenue and visible to traffic, but with a confusing entry point). When Burnham picked the center up, it was less than half occupied; today it’s nearly all leased. And it’s due to Burnham turning a deaf ear to naysayers and pumping millions into upgrades to give the center a more contemporary feel. They added interesting landscaping, redwood accents, a new fountain, and even a fire pit in the courtyard. To help drive traffic, it added freeway signs and an LED screen. Traditionally a bargain home furnishings center, Burnham attracted a variety of high-end tenants and also incorporated a weekly farmer’s market. The bet is this will reverse the center’s traditionally low sales productivity and high turnover rate.
The Strand at Headlands in Dana Point
Here’s a project that has been through a few recessions, but is finally coming to fruition. Mired in legal environmental challenges for over three decades, the 121-acre property, which has over a mile of oceanfront property at Strand Beach in Dana Point, will include 118 custom home sites, a 90-room hotel and spa, a 35,000 square-foot retail center, and five parks totaling over 65 acres. The front row home sites average 10,000 square feet and boast whitewater and sand views. And apparently, the recession is not slowing down millionaires from plucking their piece of this surfer’s paradise: Phases I and II set multiple Orange County land sales records, including a few parcels of dirt going for eight digits; and Phase III is now available, with home sites ranging from $1.95 million to over $17 million. Besides front row access to one of Dana Point’s favorite beaches, The Strand offers a private beach club, private pedestrian and golf cart access and miles of hiking trails.