CAN DIRT BE WORTH ITS WEIGHT IN GOLD? It's certainly starting to seem that way in San Diego County. And just as hard to acquire, too.
It's been nine years since Fred Arbuckle, president of Morrow Development, became involved in the Villages of La Costa, four master planned communities on 2,100 acres in Carlsbad, Calif., that could eventually be the site of 2,400 houses. Fortunately, during the six years it took Arbuckle and Morrow to gain the entitlements from the Carlsbad City Council, the region continued its steady growth in jobs and population.
In July, La Costa Oaks, the second and, at 741 acres, the largest of the four La Costa communities, opened to strong demand. Six builders are in the first phase of selling and building the planned 1,032 single-family detached and attached homes in 12 neighborhoods. The story of La Costa illustrates the difficulties of development in a hot market such as San Diego and the mixed blessing it can be for builders.
On the plus side, Morrow prepared the home sites so completely that builders could practically move right in, Arbuckle says. “We developed the backbone infrastructure and constructed the Oaks Club recreational facility”—a complex designed with echoes of Frank Lloyd Wright that serves as the focus of the community. “Each of our builders provided its own neighborhood personality, which we then promote.”
Once the neighborhoods are built out, the names by which they are being marketed—Clifton Heights, Colrich, Hillock, Starboard, Highgrove, and Stoneridge—will disappear, as will the seams between them. Such is the demand, Arbuckle says, that one builder, even without the benefit of a standing model, “is almost halfway sold out.”
Just as the demand is high for homes at La Costa Oaks, the competition was keen between builders to join the project. Some 40 San Diego–area companies vied for the opportunity to build homes that are now selling for around $1 million.
“You have to be fairly aggressive,” says Matt Tingler, San Diego division president of Warmington Homes California, which is building the Stoneridge neighborhood. Warmington was one of three private builders tapped for La Costa Oaks—the others are Shea Homes and Davidson Communities. Three public companies—Centex, K. Hovnanian, and Pulte—also are building there.
Tingler says being part of La Costa Oaks makes good strategic sense for Warmington. “We're a smaller company. We look at ourselves as a home builder first, although we can do entitlement and infrastructure. So the master planned is a great way to do it. You're buying the property and within a couple months you're building houses.”
Tingler and Arbuckle both say that the value Morrow has added to the land reduces the builders' risk. “We provide them [with] an opportunity to build later and not carry the cost of the land on their books,” Arbuckle says.
And, adds Tingler, “You're letting the developer go through the brain damage of the entitlement issues.”
But it's those issues, and the concessions the developer needs to make in order to win approvals, that may create hurdles for builders down the road.
2,100 Acres Of Infill In the years before the Carlsbad City Council unanimously approved the plan in October 2001, Arbuckle dealt with environmental issues, the city's growth management program, and the suspicion of neighbors.
Despite its size, La Costa is considered infill. The four communities are non-contiguous and fall into two separate development zones and three school districts, which adds to the complexity of achieving approval. “There are a lot of dynamics,” says Arbuckle. “You add to that the multiple jurisdictions that have different rules, different fee structures, [and] different approval schedules.”
In addition, he says, “each piece has development on its edges. We have a lot of neighbors.”
Some of those neighbors had misgivings about La Costa. “One of the continual challenges was the project's adjacency to existing neighborhoods,” says Don Neu, assistant planning director for the city of Carlsbad, who began working on La Costa when Arbuckle filed a concept plan in 1997. “Many people were feeling, ‘I lived next door to undeveloped land for 15 years and now you're building there, and I don't like it.'”
Arbuckle's quest for the holy grail of local approval has taken on a mythical quality. He moved his family into a home two blocks from where the Oaks was to be built, joined the local chamber of commerce, attended community meetings about the development, and went door-to-door to address people's concerns.
“If we were going to disagree, I wanted it to be on the facts, not people's misinterpretation of the facts,” he says.
One indisputable fact is that San Diego County is growing. The San Diego Association of Governments (SANDAG) forecasts that between 2000 and 2030, the county population will expand by 37 percent, while the number of housing units will grow only by 30 percent.
In Carlsbad, the region's fastest-growing jurisdiction, SANDAG projects a 65 percent population growth rate by 2030, while total housing units will grow 50 percent. What today is a vacancy rate of 6 percent will become a housing shortfall of 24 percent.
The plan the Carlsbad City Council approved called for Arbuckle to set aside some 1,000 acres for an open-space preserve. He also agreed to establish a $1.5 million endowment for two conservation groups to maintain the site in perpetuity.
Setting aside half the community's land becomes a valuable amenity, Arbuckle says. But in a region with a growing economy and chronic housing shortage, it also places limits on meeting demand.
Environmental issues didn't disappear even after the master plan was approved. In November 2001, the Sierra Club and two other groups sued Morrow over the development's impact on the local habitat. Of special concern was Box Canyon, a 220-foot canyon with a 20-foot waterfall.
Arbuckle had planned to preserve the site, a favorite local hangout. And in a settlement that he reached with the groups in March 2002, Morrow agreed to an “open space buffer between development and Box Canyon ... by eliminating 32 homes nearest the canyon,” according to The San Diego Union-Tribune.
“It was a challenge to make them see that Box Canyon was going to be preserved,” Arbuckle says of his detractors.
Doing The Math Another thing on neighbors' minds was aesthetics, Arbuckle learned early on. “They didn't want another sea of stucco houses” to rise from La Costa, he says. So with a formula to balance variety with order in the new development. Each of the four La Costa communities has a predominant architectural style—in the Oaks it's the Craftsman bungalow—in which a minimum number of homes have to be built. At the same time, Arbuckle says, “We insist upon a more eclectic mix of styles”—including Italianate, Santa Barbara Mediterranean, and Spanish Colonial.
Exterior colors are controlled: The same color can't be used on two houses next door or across the street from each other. The same elevation can't be used side by side.
And because the houses are built on hillsides with views from all directions, the city of Carlsbad mandated that whatever style of architecture is used on the front of the house has to be carried through on the rest of house.
All these mandates give the community visual integrity, but they also reduce the builders' flexibility. If a color proves unpopular with buyers, a builder can't simply drop it, because the color had been approved and locked in by the city before the first foundation had been laid. “This way you can't judge home buyer acceptance,” says Eric Sellas, Warmington's vice president for architectural development. “That's not the way it's done traditionally.”
Because lot sizes varied, as did set-back requirements for different-sized homes, “lot coverage percentages as well as second-story set-back issues had to be looked at on a lot-by-lot basis,” he says. “The math that went into this and the lot-by-lot analysis that went into this was incredible.”
“It's a complicated formula,” Tingler says. “It makes for a good product in the end, but it drives your costs up.”
Since its models opened in mid-July, Warmington has released 27 homes in two phases. Buyers have not hesitated to pay up to the mid-$900s for a house ranging from 3,100 to 3,400 square feet with up to four bedrooms, 3 ½ baths, and a two-car–plus, turn-in garage.
Centex is offering products ranging from 3,535 to 4,180 square feet, with prices starting in the high-$800,000s. K. Hovnanian's homes are 3,263 to 3,665 square feet, priced from the $800,000s; Pulte's 3,911-to-4,721-square-foot homes start at $1.2 million. Models at Davidson Communities range from 3,743 to 4,398 square feet and start at $1 million. Shea Homes' offerings are 3,566 to 4,225 square feet, also starting in the $900,000s.
A year from now, says Arbuckle, the builders “will be three-quarters of the way through their absorption.”
There are two more La Costa developments on the drawing board—La Costa Greens and La Costa Ridge. They could keep Arbuckle and his builders busy for the next 15 years.
By then, Arbuckle's years of knocking on doors and juggling the requirements of various jurisdictions will be history. “If the process was long, it had to do with the magnitude of the project,” Neu says.
Although it was worth the wait, Arbuckle is not so philosophical. “The time it takes to go through the entitlement process is exceptionally long. The risks are high to find yourself at the wrong end of an economic cycle.”
Project: La Costa Oaks, Carlsbad, Calif.; Size: 741 acres; Total units planned: 1,032; Price: High $800s to $1.4 million; Developer: Morrow Development, Carlsbad; Builders: Centex Homes, San Diego; Pulte Homes, West Bloomfield, Mich.; Davidson Communities, Del Mar, Calif.; Shea Homes, Walnut, Calif.; K. Hovnanian, Redbank, N.J.; Warmington Homes California, Costa Mesa, Calif.