Housing Slump Won’t Thwart Ritter Ranch, Analysts Predict : * Nevertheless, there are risks aplenty for the 10,625-acre development. Deep, patient pockets are a key to success.
For now, only rusted-over farm equipment and grazing cattle dot the otherwise empty Sierra Pelonas bordering the south end of the Antelope Valley.
But developers, as always, see so many other possibilities: A championship golf course, an equestrian center with estate homes to match, custom lots and entry-level houses and everything in between--all in an area the size of 57 Disneylands, give or take a few Small Worlds.
The proposed Ritter Ranch master-planned community, the largest housing development currently in the works in Los Angeles County, is getting underway at a time when Southern California is locked in one of the deepest and most persistent housing slumps in decades. However, even with other developers slashing prices and some filing for bankruptcy, analysts said the ambitious Palmdale project stands a decent chance at success.
“So long as the developers are financially sophisticated and have sufficient reserves and haven’t completely missed the boat, chances are they’ll be successful,” said Steve Friedman, west region director of real estate for the accounting firm Ernst & Young.
The partners in the project, television mogul Merv Adelson and his longtime associate Irwin Molasky, who together developed the tony La Costa resort in Carlsbad, Calif., in the 1960s, have already dropped $35 million into the $1 billion project since the planning began four years ago--and they don’t even own the land yet.
Developers expect to break ground on the streets of the 10,625-acre development early next year.
Although there are plenty of risks with a project as large as Ritter Ranch, many experts agree that the current housing slump should not significantly impact this 15-year project, where houses will go on the market beginning in 1995. Housing sales tend to be cyclical, they say, and developers of long-term projects usually expect to endure several downturns in the economy.
“We feel our timing couldn’t be better,” said Peter Wenner, general manager of Ritter Ranch. “By the time we offer homes to our consumers in 1995, the cycle will be on the upswing and that upswing will be greater and stronger here in the Antelope Valley,” where he expects the first-time home buyers of the 1980s will soon be ready to move up.
As in most of Southern California, housing sales in the Palmdale-Lancaster area have been slipping the past few years, as have prices. In the first three months of 1989, 1,576 single-family houses were sold in the Antelope Valley, according to Newport Beach real estate consulting firm Meyers Group. The median price was $146,900, meaning that half the houses sold for more and half for less.
In the first quarter of this year, only 583 houses changed hands and the median price was $131,990.
Though the local housing market is likely to be on the mend by the time Ritter Ranch’s first house is completed, analysts say, the project’s developers must nonetheless tread carefully. Like many planned community projects, while payoffs can be big, losses can be equally so. And experts warn that Ritter Ranch could get into trouble if too much money is spent too soon on fancy amenities and houses that are overpriced for the market.
“The landscape is littered with the carcasses of failed new towns and master-planned communities,” said Richard Peiser, director of the Lusk Center for Real Estate Development at the University of Southern California.
In projects as complicated as master-planned communities, experts say, success hinges on a variety of elements including timing, design, marketing, whether the plan is flexible enough to change courses should market conditions change and how much cash is invested upfront.
“You have to have deep and patient pockets,” said Marta Borsanyi, executive vice president of Robert Charles Lesser & Co., a Los Angeles-based real estate advisory firm.
In the case of Ritter Ranch, the deep pockets belong to Adelson and Molasky. The partners, who could not be reached for comment, were principal owners along with Allard Roen of the luxury La Costa Resort Hotel and Spa, which they sold in 1987 to Japanese sports tycoon Toshio Kinoshita for $250 million. Adelson and Molasky also co-founded Lorimar Telepictures Corp., a film and television producer and distributor. Adelson was Lorimar’s largest shareholder, with 11% of its stock, when the company was sold to Warner Communications--now part of Time Warner Inc.--in 1989 for $625 million.
Ritter Ranch’s developers are ambitious, to say the least, planning to have the 18-hole golf course, clubhouse and 38-acre equestrian facility in place when the first resident moves in.
While such amenities are a lure for potential home buyers, they also pose risks, analysts said. Prospective home buyers are willing to pay higher prices for a completed golf course as opposed to one that is merely envisioned in an architect’s scale model. At the same time, it means spending more money up front.
“If I were advising them, I would tell them to concentrate on the affordable housing first,” Peiser said, “and be wary of too many promises such as delivering expensive golf courses before anyone moves in.”
Though builders for the houses have not been selected yet, the development will ultimately include homes ranging from apartment units to custom houses on more than two acres in styles referred to in brochures as “California Ranch,” “Victorian” and “Craftsman.” Wenner said about 37% of the 7,200 units will be upscale homes with prices up to $375,000. Another third will be for second- and third-time home buyers and 28% will be entry-level houses starting at about $125,000.
Like any other large development, Ritter Ranch is not without its detractors.
Some residents in neighboring Leona Valley, which lies in an unincorporated area west of Ritter Ranch, believe the development will destroy the rural atmosphere of the community, and have filed a lawsuit charging that the city of Palmdale had used an outdated General Plan to approve the project.
The Leona Valley Town Council is also a plaintiff in two other lawsuits that target Ritter Ranch, one of which alleges that the project’s environmental impact report is inadequate and the other is over the project’s water service agreement with Los Angeles County.
The lawsuits are all still pending, but Wenner said he’s confident that Ritter Ranch will break ground on schedule.
Wenner said no debt has been incurred on the project so far and that all of the money invested to date has come from Adelson and Molasky. The project “will use other forms of financing” as it progresses, including debt, Wenner said, although he declined to say how much would be needed.
Adelson and Molasky hold an option to purchase the land from Woodland Hills-based Ritter Park Corp., which bought the land in the 1950s.
Real estate specialists said that Ritter Ranch would do well to avoid too much debt financing, because interest costs can add significantly to the prices that houses must sell for in order for the developer to make a profit.
Ritter Ranch is currently negotiating with the city of Palmdale the terms of a Mello Roos district that would pay for roads, sewers, street lights and other infrastructure for the first phase of the project. Under state law, Mello Roos districts allow public agencies to raise money for infrastructure needs by selling bonds and having residents in the district pay off the bonds over time.
City officials estimate the district would raise between $40 million and $55 million through bonds for the first phase of Ritter Ranch, which would eventually be paid off through added property taxes by Ritter Ranch residents.
Despite the risks, real estate experts agree that the Antelope Valley is as good a place as any in Los Angeles County to build a project as vast as Ritter Ranch.
Indeed, one summer morning low mid-morning clouds bumped across the landscape and receded through the hills where Ritter Ranch will lie--in the process, cooling down a desert heat that would otherwise melt the dimples off a golf ball.
“It’s prime location,” Peiser said. “There is some beautiful land there with special features and views.”
