Builders Are Getting Bullish Over Land and New Homes

Home builders in the San Fernando Valley and Ventura County appear to be bullish on prospects for new home sales, and several builders have been on a land-buying spree.

“We’re back in the buying mode,” said Larry Persons, vice president of development at Meeker Land & Development in Thousand Oaks. “The price of land has dropped to the point where it makes sense for us to buy and build.”

In late 1992, Meeker bought a tract of 160 home lots in Oxnard from Glenfed Development Corp., which is liquidating its real estate holdings to comply with new federal regulations that make it very unattractive for its troubled parent, the S & L Glenfed Inc., to own and develop real estate. Meeker is also about to close escrow on another 272 new home lots owned by Glenfed in Ventura.

“We’re looking at other tracts too,” Persons said. “And, we’re looking at purchases that can be built on in the near term.” For nearly 1 1/2 years, Meeker and many other home builders were all but out of the land-buying market, he recalled. Now, “the builders that are still alive have the chance to pick through a number of attractive land deals.”

Land prices in Ventura County have fallen about 25% over the past three years, Persons said. In Oxnard, land costs have dropped about 20% and in parts of the Antelope Valley, the drop in land values is even larger.

Builders who are buying today are buying so-called finished lots that have all their governmental entitlements in place, plus roads, sewers and other infrastructure construction completed. So-called raw land--which has no entitlements or improvements--”has almost no value now,” Persons said.

“There’s been a big adjustment in land values,” said Chuck Fuhr, president of the north counties division at Warmington Homes in Agoura. In some communities, he said, land prices are down by 40% to 60%.

These price reductions made it possible for Warmington to recently purchase 432 lots in Calabasas and build a cluster of new homes that are about $100,000 less than similar homes that he sold just two years ago, he said.

“The reason we’re buying is because we didn’t get stuck with a big inventory of land when the market fell,” Fuhr said.

Companies that did have large land holdings have seen the value of their portfolios plummet. The builders that have survived California’s prolonged recession either had little debt or deep pockets.

Land is being sold off by the federally created Resolution Trust Corp., which takes over failed banking institutions, while other land is for sale by troubled builders or by lenders that have foreclosed on a property that they want to sell.

In places like the Antelope Valley, there’s still a big supply of lots that were prepared for construction several years ago and are still empty. In the Valley and Ventura County, however, “there aren’t all that many finished lots left. There will be a shortage by the end of 1993 or the start of 1994,” Fuhr predicted.

When the supply of finished lots does run out, he said, builders will turn to finishing lots where entitlements have already been assembled by someone else. Builders are very reluctant to actually get involved in converting raw land into entitled land, Fuhr said, and hardly any money is available to builders willing to undertake the long and arduous task of getting all the approvals necessary to build on a particular site. Entitlement fees to cities and school districts can cost between $20,000 and $30,000 per lot.

“It’s way too early to work on assembling entitlements for raw land,” said Mark Beisswanger, president of the coastal valleys division at Kaufman & Broad Home Corp., Woodland Hills. Besides, he said, “there’s plenty of entitled ground.”

Last year, Kaufman & Broad bought 171 lots in Canyon Country from RTC and another 116 lots in Castaic’s Hillcrest Park from another home builder.

“We’re able to begin construction immediately after we purchase finished lots,” Beisswanger said, and half of the homes are already sold. The company, he said, paid about $70,000 to $100,000 per lot. About $20,000 to $25,000 of that was made up of fees paid to various government entities.

“All of a sudden, there are more home builders in a buying mode,” said Stephen Smiley, managing director at the Meyers Group, a real estate consulting firm in Encino. “Deals that didn’t pencil out a year ago are making more sense now.”

Some of the larger builders “are looking to increase their market share,” Smiley said. “I’ve talked to about half a dozen builders who are looking for land in (Santa Clarita Valley’s) Stevenson Ranch alone.”

The Meyers Group reported 705 new homes and 384 new condominiums and townhomes unsold at the end of the first quarter in the San Fernando and Santa Clarita valleys. This marked the third consecutive quarterly decrease in total inventory and the lowest overall inventory of new homes and condos since the third quarter of 1989.

The best-selling attached project in the first quarter of this year was Capri II in Agoura by Pardee Construction, which had a total of 27 sales in the first three months of 1993. During the same period, California Summit, a Canyon Country development by Kaufman & Broad, was the top selling single-family home project with 62 sales, according to the Meyers Group. The project offers homes from 1,261 to 1,800 square feet with base prices ranging from $151,990 to $192,990.

In Ventura County, there were a total of 637 new homes and condos for sale as of April 1.

The overall inventory level decreased 2.2% from the last quarter of 1992.