Ares, which manages a portfolio of $37 billion, became a major shareholder in City Ventures, which had $27 million in funding in place by the end of last year, according to Mark Buckland, its CEO and the former co-founder and COO of The Olson Company.
Buckland launched City Ventures in January 2009 with Craig Atkins, who co-founded O’Donnell/Atkins, which became the largest land brokerage in California; and Imperial Capital, an investment banker that Buckland says introduced City Ventures’ two principals to Ares executives.
City Ventures’ game plan is to build houses in coastal California markets that may have been overpriced during the last housing boom, but were not overbuilt. The company currently controls in excess of 1,000 lots in 13 counties, which Buckland projects should carry the builder’s construction for the next four years.
The builder has three projects in the works.
City Ventures took over a project in the Scripps Ranch community in San Diego whose homes had been selling for between $1.2 million and $1.4 million. Those homes are now being marketed by City Ventures for $725,000, which has sold the last 19 homes in this community in three months.
A second City Ventures project in the La Costa Ridge neighborhood in Carlsbad, Calif., has 34 homes that had been priced at between $800,000 and $900,000 and now go for $625,000. Buckland says the company has been averaging six sales per month there.
Thirdly, this month, City Ventures is scheduled to begin construction on a 48-unit townhouse project in Santa Barbara where its homes will start at $450,000.
The Los Angeles-based startup also has planned an enclave of live-work artists’ lofts in Santa Ana that would start in the $300s and a community of high-end homes, starting at $1.5 million, in Pasadena, which it plans to open next spring.
The goal is to close 35 homes and generate $10 million in revenue this year, 300 homes and $100 million in 2011, and 600 homes in 2012 “at two or three times [revenue] growth,” says Buckland. By 2013, he expects City Ventures to be closing 1,000 homes annually.
Through a spokesman, Ares Management declined to comment about its partnership with City Ventures beyond the prepared statement of its senior partner Bennett Rosenthal. In that document, Rosenthal that that City Ventures' “unique set of skills in the urban infill market makes the company a compelling investment opportunity.”
Buckland readily acknowledges that the injection of capital from Ares is an important component in City Ventures’ achieving its growth objectives at a time when institutional lenders like banks continue to resist investment in real estate or housing. “It’s challenging to get a 50% construction loan, even when you have a clean balance sheet,” he says, recalling one bank that wanted “three different sources of payment” before it would even consider a loan. “Now that we have a solid capital partner, we don’t need to go to the banks.”
That being said, Buckland expects banks to return to financing residential development and construction eventually, at which point he’s hoping his new company would be able to secure a large revolving line of credit.
John Caulfield is senior editor for BUILDER magazine.