The Irvine Co. finally went public on Mon. Oct. 19 with what’s been an ill-kept secret for months -- the storied California community developer is branching out into home building. Instead of selling lots to builders, The Irvine Co. has developed 25 home designs and is hiring six builders to build them. The builders get flat fees for the construction, and The Irvine Co. gets the profits.
Irvine said that the difficulty some builders have getting construction financing may have been some impetus for the change in business philosophy. "I think if we waited until that problem has corrected itself we would probably be in 2011, and we think we have a window of opportunity now," said Gary Delsohn, vice president of corporate communications for the company.
Though several builders Irvine is hiring are hardly hamstrung for construction cash. Lennar and KB Home, both with considerable cash on hand, are two of the builders who will be working as merchant builders for Irvine. The other four builders are Brookfield Homes Southland, The New Home Co. (led by Larry Webb former John Laing Homes CEO), TRI Pointe Homes, and Van Daele Development.
All builders left standing have been seeking ways to keep cash coming in to keep the lights on. Many have been bidding on lots where prices have fallen far enough to make construction profitable again. The Irvine opportunity makes the equation easier for builders since they will be paid a set fee from the outset and won’t have to scramble and compete for the best lots with other builders in the same situation.
The six builders will be building in Woodbury and Woodbury East villages, both part of the Villages of Irvine development in Irvine Ranch, a 798-square-mile swath of Orange County, Calif., that stretches 22 miles inland from the Pacific Ocean to the mountains. The city of Irvine is in the heart of Irvine Ranch, which has more than 290,000 residents and nearly 280,000 people employed there. The Irvine Ranch was an early exercise in massive master planning.
The Irvine Co. thinks now is the right time to launch its new home building venture.
"A variety of data shows there is significant pent-up demand for new housing in Irvine," said Daniel Young, president of Irving Co. community development. "Historically, buying a home in Irvine has been a tremendous long-term investment, and it remains a very desirable community for potential home buyers as demonstrated by the extremely favorable response to new homes in Woodbury East." In July, a new townhome community in the Ivy area sold out within 15 minutes after the phase was released, with more than 2,000 people showing up to tour the models. Dozens were in line for two hours before the sales office opened.
As the home market crashed over the last two years The Irvine Co. set out to determine what the new-home buying consumer would want in a house when the market resumes its rise, interviewing hundreds of potential buyers in the process.
"Over and over, consumers told us they wanted more livability and better functionality in floor plans," said Rob Elliott, The Irvine Co.’s group senior vice president for urban planning and design, in the news release.
Irvine took the research to the builders they wanted to work with and collaboratively developed the 25 great room/kitchen-centric floor plans in the 2010 New Home Collection that allow for large groups of people to flow seamlessly from room to room. A “California room” with three sides open to the outside sits on the back side of the great room, creating an indoor/outdoor living space.
"We are real excited about the product because it is different from the kind of things we have been doing," said Delsohn. "We are not recycling. This is fresh product that we think people are going to respond to."
Models should be open by early next year. Prices are expected to start in the low $300,000s for townhomes that start at 1,040 square feet. The most expensive homes will start in the high $800,000s and have as much as 3,046 square feet.
All the homes will be built under California’s Build It Green standards, exceeding the state’s building and energy code requirements. The houses will also be eligible for FHA financing, making them affordable to more buyers.
Potential buyers can explore floor plans and experiment with interactive features at www.VillagesofIrvine.com.
Teresa Burney is a senior editor with Builder and Big Builder magazines.
Learn more about markets featured in this article: Los Angeles, CA.