Centex Corp., the nation’s largest home builder,...
Centex Corp., the nation’s largest home builder, said Feb. 11 that it will buy 915 home lots in Foothill Ranch, a planned community in south Orange County. Analysts hailed the $45-million purchase from developer William Lyon Co. of Newport Beach as a sign that the area’s real estate slump is over. In a phone interview from Centex’s Dallas headquarters last week, Timothy R. Eller, 45, chief executive officer of the company’s Centex Homes division, spoke with Times correspondent Debora Vrana about the strategy for Foothill Ranch.
Why did you decide that now is the time to enter the Orange County real estate market in a big way?
In Texas, we went through a similar downturn and in our experience it’s best to grow at the bottom of the cycle. It’s almost impossible to call the timing of these cycles, but that’s where we think we are now in California. While the reasons for the California and Texas downturns were different, the consequences were the same.
We are already in Orange County with our project in San Clemente. We were unable because of the market to do any further expansion, although we wanted to. So we were very patient and just waited for the best opportunities. We’ve been continuously looking at areas in Orange County. We plan to be there for quite a while.
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Has the Southern California real estate market truly bottomed out?
If we haven’t hit bottom, it’s pretty close. I don’t think we’ll see significant declines in real estate values from this point on. We’re certainly able now to buy land in Orange County that we couldn’t four years ago because of inflated land values.
One indicator we watch closely is job creation. And while job growth in Southern California is still negative, the trend is that it is flattening, and I think we may see an upturn shortly.
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Do you see a lot of parallels between the Texas and Southern California markets?
In Texas, land values took a plunge as a result of the oil boom and bust. In Southern California, it was aerospace. In Texas, we bought a lot of our properties from the Resolution Trust Corp., which got them from banks, and savings and loans. In California, it’s similar but instead of buying properties from financial institutions, we’re buying them from home builders. There were hundreds of builders in California five years ago; now there are a lot fewer. A few years ago we were ranked about the 20th-largest home builder in California. Now we’re in the top five.
We feel very bullish about long-term prospects for California and we intend to promote a similar strategy to the one we used in Texas.
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What happens if things start to pick up, but then further job losses in the area continue to erode our economy and real estate values drop again?
That’s certainly a possibility. But that would be a different trend than we’ve seen in other areas of the country. Typically, the downturns are deeper than what anyone anticipates and the upturn is slower than anyone expects. That’s what we’ve seen in California. And the indication so far in California is that the cycle is the same as in the Midwest and Texas.
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What types of homes are you planning for Foothill Ranch?
We would anticipate building a major condominium project and homes ranging in price from $160,000 to $250,000. They will be targeted to first-time and move-up buyers. Clearly, there seems to be a demand for this type of home--we are having good success in San Clemente in higher price ranges.
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Why Foothill Ranch? Why not pick a project where your homes won’t be selling alongside another builder’s?
Foothill is a well-developed community, also well-located and executed. Those reasons outweigh any negatives, and a little competition won’t hurt us. We can segment our development so we won’t be competing directly.
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Centex is buying the lots for about 60% of what William Lyon paid at the top of the market. Even including the lot improvement costs, you will be able to build, at the least, the same size houses that are already there but for less money. Won’t people who already have homes there be upset?
That’s a question I just can’t answer.
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Several developers outside of our area--Centex, Del Webb Corp. of Phoenix and the Rockefellers--recently announced plans to build homes in Southern California. What does that mean? Are you all vulture investors?
I guess these moves signal that California is coming in vogue. On the vulture question, I can only speak for Centex and say we are not. If you look at our history, the markets we’ve entered are ones where we intend to be for the long term. We generally don’t leave markets we’ve entered.
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How would you describe Centex?
You could characterize us as a market home builder, meaning we build houses that are in demand in the market we’re building in. We build all types, (priced) from the $60,000s to $500,000s. We focus on market opportunities.
Probably our heaviest concentration is in Texas; over 30% of our volume is there. We’re in almost every market in the United States except the Northeast. We’re a large builder in Florida, Washington, D.C., Chicago, Colorado and the Midwest.
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Do you have any advice for other developers outside California who might be eyeing residential real estate here?
From a selfish standpoint, no. Although we are a public company, we don’t have unlimited capital, and this transaction was one we considered very carefully. California requires a lot of capital because of the costs involved with all the regulations there.
On experience in California. . .
“We’ve been in Northern California since the 1970s. We expanded into Southern California in 1987. We hit the market right before the peak, and it was tough to grow a business in Southern California at that time.”
On whether property values could be hurt by the recent fires and earthquakes. . .
“We certainly haven’t seen any concern in the neighborhoods we’re building. California has its earthquakes, Texas has its tornadoes, and Chicago has its snows. I think every area of the country has something to worry about.”
On the outlook for California. . .
“California was the last to boom and the last to bust. Right now, we don’t see any areas of the country showing distress close to California’s. Every other market seems to be relatively healthy now.”
On other projects. . .
“We are looking in Ventura County.”
