McMillin Communities, the San Diego-based home builder and developer, wasn’t really looking to expand into the Midwest. But about nine months ago, a deal came its way that was hard to turn down: the chance to get involved in the development and completion of the 6,500-acre Branson Creek master planned community in Missouri’s Ozark region. When finished, this community will include 12,000 homesites, along with an 18-hole 7,100-yard golf course, a marina, a country club, and the country's first privately financed airport.
In May, McMillin formed a partnership with GEP Inc., a Florida-based developer, whose founder Glenn Patch has already invested $100 million into Branson Creek. Patch tells BUILDER that he needed to find new financing when Regent Bank, to which he owed $10 million, pulled his loan. “We had all of our property tied up in that, and I was running out of money,” he says. McMillin and its financial partner, Oaktree Capital Management, got this project going again by taking over that loan obligation.
Branson Creek is one of several projects that McMillin has entered into or revived in recent months. It has the entitlements in place for Millenia, a $4 billion, 207-acre project that is being fashioned as the urban heart of sprawling Otay Ranch in Chula Vista, Calif. When Millenia is completed over the next two decades it will include 3,000 sustainable multifamily housing units.
And a month after announcing its partnership with GEP, McMillin Communities—which The Corky McMillin Cos. formed at the start of 2010—acquired a second master planned community called Summerly, on 700 acres along the southeastern edge of Lake Elsinore in Riverside, Calif. This project will have 1,481 homes, as well as 37 acres of open space and recreational area.
Summerly had been a John Laing Homes project on which Bank of America had foreclosed. Mark McMillin, president and CEO of McMillin Communities, says his company and its financial partners on this deal, Oaktree and Civic Partners, convinced BofA that the project was worth moving forward on. “Bank of America is tough but fair, and by purchasing this we kept it from going to public auction,” he says. The parties did not disclose the terms of the acquisition. When asked how these deals fit into his company’s overall growth strategy, McMillin says the main goal is profitability. “We’ve been staying alive with cash flow, but we have to get to where we’re making money again.”
Branson Creek should be a good test for this effort. The community is located about 4 miles from Branson’s commercial and tourist center, which attracts more than 8 million visitors annually. About 40% of the community’s home buyers so far have been retirees, and the rest are second-home buyers, many of whom intend to retire here eventually, too, says Tim Mahoney, GEP’s president.
So far, 110 homes are sold and occupied at Branson Creek. A section called Fieldstone Bluffs features single-family homes that average 2,150 square feet and range in price from $250,000 to $300,000; another section called Fieldstone Villas offers homes that average 1,650 square feet and run from $200,000 to $240,000. There are about 65 units left to be built in this phase, and the plan is to build units with more living space—as large as 2,800 square feet—that would sell in the $230,000 to $270,000 range, according to Mahoney.
The Fieldstone series is also “highly amenitized,” observes McMillin. In subsequent phases, McMillin Communities intends to introduce lower-priced houses that will likely resemble what it’s building and selling in San Antonio, which range from 1,500 to 3,000 square feet, and are priced between $190,000 and $270,000. He expects Branson Creek’s current owners might complain initially that these new homes could lower their houses’ value. “But we’ll try to convince them that they’re better off having new homes built than letting the rest of the lots just sit there.”
McMillin Communities will also build homes that start in the low $200s at Summerly. (The houses selling at its Jacaranda neighborhood in the company’s Lomas Verdes master plan at Otay Ranch are possible models for what McMillin Communities might bring to Summerly.) McMillin says his company would be a builder on this project’s 214-unit first phase, for which selling is expected to begin in the second quarter of 2011. But it might also bring in one or two other builders.
Summerly is closer to what McMillin Communities is looking for to expand: A master plan located in Southern California. That doesn’t mean, though, that it isn’t open to other growth opportunities. At presstime, it was looking into an acquisition in San Luis Obispo, Calif. And McMillin says the company wants to expand its operations in San Antonio, which is up to 250 closings per year.
The challenge is getting banks to start lending again, and on that front he’s seen some lenders in California easing their credit restrictions.
McMillin Communities benefits from its relationship with a deep-pocketed investor such as Oaktree, “which is telling us to go out and buy things,” says McMillin. But he’s less sanguine about finding other sources of private capital for residential development and construction. “The private equity guys I’ve talked to are still looking for 30% IRRs, and then wonder why they can’t find a place to put their money.”
John Caulfield is a senior editor for BUILDER magazine.