Full-Court Press : High-Density Detached Homes for the Mid-Income Family
The rules for home building are about to change--to the benefit of middle-income consumers who have long been locked out of the detached new home market in high-priced areas of Orange, Los Angeles and San Diego counties.
For much of the past decade, soaring real estate values in coastal Southern California have driven tens of thousands of young families inland in search of a place with their own yard, walls that aren’t shared with the neighbors and mortgages that don’t require $80,000 annual incomes.
Now, after two years of hush-hush research and negotiation, Newport Beach home builder Recre-Actions Group of Companies is bringing unsubsidized, moderately priced single-family detached homes back to Orange County--and from there to other pricey areas of the Southland.
“These are homes for people who make $35,000 to $60,000 a year,” said E. James Murar, chairman and co-founder of the 20-year-old company.
The target market for 860- to 1,889-square-foot homes, added RGC president and planning chief Harold Lynch Jr., “is the buyer who now goes to Moreno Valley, and the person who is renting in Orange County for $1,000 a month and never dreamed of being able to buy a single-family detached home here.”
Although the plans are an evolution--growing out of an earlier RGC design for high-density courtyard homes in Irvine that are attached--builders and land planners say the concept is likely to bring about a revolution in the housing market.
“There’s no question that what this will do will have significant impact within a short period of time” on what other builders will start bringing to the market, said Ken Agid, an Irvine-based real estate marketing consultant.
That expectation is one reason RGC has copyrighted the land-use designs, Murar said. It hasn’t established a fee schedule yet, but the company plans to make money licensing its planning techniques to other builders who want to compete with it in the first-time buyer market in otherwise expensive communities.
RGC’s innovative land-use system utilizes unusual land-buying agreements to set up clusters of small detached homes on unconventional lots arranged around private courtyards to enable it to build as many as 16 single-family homes per acre--about 60% more than the current maximum density.
The trick?
“A lot of land planning is done within the constraints of government-required setbacks and land dedications” and a lot of builders spend a lot of time blaming government for restricting them, said Lynch. “We sat down and thought about what we could do as a company rather than about what government should do.”
By early spring, the plans that the company’s eight-member team came up with will be off the drawing board and in several projects in Orange County. RGC picked one of Southern California’s hottest architectural firms--McLarand, Vasquez & Partners in Costa Mesa--to design the two-story homes.
RGC, which typically develops through partnerships, has teamed with a private real estate investment firm, Cooper & Co. in Irvine, to create Newport CourtHomes L.P. to build the subdivisions.
The new company already has land purchase agreements and tentative tract map approval for five projects with a total of 750 homes in Tustin, Newport Beach and Rancho Santa Margarita and is negotiating land agreements for two more in Irvine and one in south San Diego County.
Valencia Co., developer of the city of Valencia in northern Los Angeles County, is so intrigued with the concept that it is considering a 1,000-unit development in which Newport CourtHomes would build four RGC products, said John Martin, Valencia Co.’s senior vice president of residential real estate.
Developments like those RGC’s planners have created wouldn’t work in most parts of the nation, because land prices elsewhere rarely approach even the recession-deflated prices that lots do in the Southland.
“In most of the country when you say small lots they think you mean quarter-acre,” parcels said Debbie Bassert, senior land use planner for the National Assn. of Home Builders.
“In California you already are pushing the edge for single-family densities,” she said, acknowledging that RGC is venturing into the unknown.
Purchasers of the CourtHomes obtain clear title to the structure and a private, fenced yard that ranges in current designs from a mere 400 square feet to about 1,000 square feet. The courtyard area and all other land in a development is owned in common and maintained by a homeowner association. In Orange County, where builders were paying $100,000 apiece and more for finished residential lots before the recession hit in 1990 and where $70,000 lot prices still aren’t uncommon, small-lot developments with densities of up to 10 homes to the acre have been the norm for years.
Add the cost of actually building the home and prices for new detached houses in the county still routinely start above $250,000.
The median price of a new single-family detached home in the county was $298,000 in the third quarter, according to a recent report by Meyers Group, a Newport Beach real estate consulting firm.
By contrast, the tentative median base price for the various CourtHome projects in Orange County is $177,000. Prospective prices for homes planned for south San Diego County’s planned community of Eastlake range from $145,000 to $167,000.
Because of RGC’s high densities and because of the company’s unusual purchase agreements with land owners such as the Irvine Co. and Santa Margarita Co., prices for these detached houses will be competitive with apartment-style condominiums and townhomes, because they will offer private yards and an ownership form--that gives buyers sole title to their buildings.
Although the units are detached homes, each courtyard cluster is legally a condominium lot and buyers are purchasing sole title to their house and its private yard area and common ownership of the courtyard and other landscaped areas.
One benefit is that association dues should be $40 to $50 a month lower than the average $125 monthly bill at typical condominiums where dues include common building maintenance and insurance fees, Murar said. At today’s low interest rates, he said, “that savings translates to about $7,000 more buying power in the price of the home.”
Projected prices for the various CourtHome projects are $95,000 to $173,000 in Rancho Santa Margarita; $145,000 to $199,000 in Irvine’s Westpark area and $221,000 to $255,000 in Tustin Ranch.
By contrast, the median price for all attached new homes sold in Orange County in the third quarter was $169,990.
For more upscale buyers, RGC has acquired land from the Irvine Co. for a 10-units-per-acre project in the new Newport Ridge area. In a city where new detached homes typically start at $500,000 and quickly escalate, RGC’s proposed base price range is $285,000 to $358,000 for 1,374 to 1,889 square feet.
Construction on the first projects--one in Newport Ridge and three in Rancho Santa Margarita’s Town Center--is scheduled to begin in February.
And at a time when a national credit crunch has stalled many developers, RGC officials said they hope to be able to build the CourtHome projects without having to borrow any money.
Because of the purchase agreements with the Irvine Co. and Rancho Santa Margarita, Murar said, it is likely that the homes can be built using just the equity capital supplied by Cooper & Co. and other investors--a sum neither company would divulge.
The landowners effectively are allowing Newport CourtHomes to set aside all of the acreage needed for a project but are requiring the company only to pay for the land on an as-needed basis, as little as half an acre at a time.
That relieves the builder of the ongoing cost of interest payments on loans for land that won’t be developed for months.
“The payoff is a dramatic reduction in our capital requirements,” said Murar. “While a 150-home project previously would have required $14 million to $18 million, our new product and process allows us to build a similar community with just $3 million to $5 million of capital” by building in very small increments.
The lower financial costs, he said, help everyone concerned. RGC benefits from decreased operating costs, the landowners sell what otherwise would be fallow land and consumers get lower prices.
