In one of the worst housing recessions to hit Southern California, Far West Industries continues to find niches that attract buyers. Through last week, the Santa Ana-based builder had contracts for 18 of the 27 townhouses in Ruxton Place, a community in Redondo Beach it took over, partially completed, from a developer last year. Starting at $540,000, those units are priced to compete with resales and are targeting buyers seeking affordability near the beach. The builder expects to close escrow on those sales on June 1.
Far West also recently acquired from a bank 12 finished single-family lots in Encinitas, Calif., where homes will sell for $1 million and up.
This 32-year-old family owned builder, which began as a home-improvement company, expects to sell between 50 and 60 houses in 2009, according to its president Scott Lissoy. While it hasn’t completely escaped the ravages of the downturn, Far West has been remarkably successful—and “lucky,” admits Lissoy—at creating demand where, for other builders, there has been very little.
The best example of this is Far West’s San Marino community in Fountain Valley, Calif., where a year ago the builder drew more than 1,500 prospects in the first weekend it previewed models for only 54 homes that ranged from 3,006 square feet to 3,851 square feet with four or five bedrooms, and from $929,900 to $1.1 million. The demand was so strong for these houses that Far West decided to sell them by lottery in eight phases from March through August of 2008. (It closed its last home in that community in March 2009, says Lissoy, and realized $56 million in sales within that six-month period.)
A number of factors contributed to this community’s success, Lissoy recalled in an interview with BUILDER last week. For one thing, the Wall Street meltdown hadn’t happened yet, so buyers weren’t immobilized as they are today.
Lissoy also knew this market like the back of his hand: he went to high school in Fountain Valley, his mother taught school there, and his parents still live there. He noticed that the area had been going through a demographic transition over the past 10 to 15 years, and was now heavily populated by Asian immigrants, many from Vietnam.
When the Fountain Valley School District put 14 acres up for sale, Lissoy saw his chance to squeeze into a market that was nearly built out. And he wasn’t bidding against the large private and public builders that had already started retrenching. (Lissoy notes that KB Home had purchased another school district site a year earlier, but put it on hold—“even with entitlement and a site map,” he says—because it didn’t think there was enough demand at the time to warrant construction. KB now has models on that site for homes that are selling for up to $1.1 million.)
San Marino has other things going for it, too. It has good access to the nearby freeway and is also located within a mile from the Little Vietnam commercial strip in Westminster, Calif., so that Asian buyers would still be close to familiar shops. The local high school, which Lissoy says has a strong academic reputation, is right down the street from the community, which includes a one-acre park that the city operates and maintains. And because this had been a school district, there were neither Mello-Roos taxes to cover infrastructure expenses nor a homeowners association, so the community’s tax rate averaged an incredibly low 1.1%.
Lissoy says much of the existing housing stock in and around Fountain Valley are 30- to 50-year-old homes no bigger than 2,600 square feet. The houses in San Marino are not only more spacious, but sit on lots from 7,200 to 13,060 square feet with front landscaping included. Far West hired Knitter & Associates, an architectural and planning firm, to create houses that could appeal to both Asian buyers and a broader customer cross-section. “We were feng shui conscientious in our design,” says Lissoy, which means that the houses have elegant kitchens, take into account the door and stairwell orientations, and avoid certain numbers in their street addresses.
The houses also include a downstairs bedroom with a full bath to accommodate in-laws for those households that live in extended family arrangements, which tend to be more common among Asian buyers.
Far West sold these homes “pre slab,” says Lissoy, and built them to order. This wasn’t too big a risk, he explains, because “we took a $15,000 deposit, which increased to $25,000 in the later phases. And the buyers were making big down payments.” Far West pre-qualified all of its buyers through two banks, Wells Fargo Mortgage and Covenant Mortgage. Lissoy says buyers ordered an average of $40,000 in options, for which Far West demanded a non-refundable cash payment.
Far West refused to negotiate on either its prices or options, despite the inclination of many of its customers to bargain. Lissoy says several buyers “tried to grind us even before the first lottery. But we told them if they wanted to negotiate, they could give up their slot because we had plenty of other people who would fill it.”
It’s doubtful that Far West, or any builder for that matter, could be this inflexible today, when buyers are in much shorter supply. Lissoy admits that his company’s experience at San Marino was “an anomaly,” and that market conditions now are far more difficult. His company’s Far West Collection @ Verano, in Cathedral City, is on hold, says Lissoy, until some resolution is reached about who is going to install the infrastructure, now that the master developer is out of business. Far West’s community in Riverside, Viaggio II, is currently selling homes “at a loss.” And the builder has been financing the construction of communities in Riverside and Redondo Beach with its own cash, as banks continue to resist making construction loans available.
That his company has two banks in the wings that will to provide financing for its community in Encinitas is, according to Lissoy, strictly “a credit decision. We don’t have legacy issues there: no mechanics liens, no lawsuits.”
John Caulfield is senior editor at BUILDER magazine.