Builder, Banker Join in Major O.C. Project : Real estate: Partners Kathryn Thompson and Freeman, Spogli plan to construct 1,200 low-cost homes.
In one of Southern California’s largest development deals in recent years, home builder Kathryn Thompson has teamed with a major private investment banking firm in a four-year, $200-million project to build 1,200 low-cost homes in this planned community.
The partnership has purchased 162 acres in Aliso Viejo--one analyst estimated the price at between $35 million and $45 million--and plans to build nine separate developments with most homes priced from $110,000 to $185,000.
Participation of Los Angeles-based investment banker Freeman, Spogli & Co. as Thompson’s moneyed partner sends a message to the financial world that there is, indeed, life in Southern California’s recession-plagued real estate industry.
A spokeswoman for the Mission Viejo Co., developer of the 6,600-acre Aliso Viejo community, said the sale is “the biggest residential land sale we’ve had in six years.”
It also is the largest residential land sale anywhere in Orange County, in acreage, since the real estate market collapse began in 1989, said Nima Nattagh, analyst for TRW-Redi Property Data in Riverside.
The last major deal occurred in February, when Dallas-based Centex Homes bought 915 lots from financially ailing William Lyon Co. Several builders who had bid on the same land put the value of that deal at $45 million. Only 10 land sales in Los Angeles County during the past five years have been larger than 160 acres, Nattagh said.
Thompson, who estimates that the project will create up to 600 construction and development-related jobs in Orange County, said Freeman, Spogli has guaranteed an investment of up to $50 million in the partnership.
She said a number of Southern California banks have shown interest in providing construction financing. “It’s wonderful,” Thompson said. “We have banks courting us for a change.”
Since 1989, many banks and thrifts have avoided real estate investments. The major preoccupation of most Southland developers recently has been to find new sources of money.
Thompson called the joint venture particularly important because it shows that there is money available for private builders. “The public companies like Kaufman & Broad can go the stock market,” she said. “This opens new areas” for privately owned companies.
Thompson said she teamed with Freeman, Spogli after several disappointing trips to the money markets in New York over the past two years.
“I got a lot of doors slammed in my face” on the East Coast, she said.
That is changing, but slowly. “In the past six months we’ve seen a definite increase of interest from Eastern financial sources in the Southern California real estate market,” said Dennis Macheski, research director for the Price Waterhouse Real Estate Group in Newport Beach.
The draw, said Irvine real estate marketing consultant Kenneth Agid, “is that there is a huge pent-up demand for entry-level housing” and investors are beginning to see it.
Bill Wardlaw, general partner at Freeman, Spogli, said the company has invested more than $500 million in 18 business deals since it was founded in 1983, and now is working out of a third investment fund of $580 million. but it had never considered a real estate project until Thompson knocked on the door of its West Los Angeles office.
Thompson, who is co-owner of the Kathryn G. Thompson Co. with former Koll Co. executive J. Harold Street, has built more than 10,000 homes and apartments in Orange and Los Angeles counties in the past dozen years and, as master developer of the 2,000-home Laguna Audubon project, has been the largest home builder in Aliso Viejo. Her company is headquartered in that community.
“We had not thought about real estate before, but as we got to know her and began to understand the great opportunity she was bringing us, we became very, very excited about this,” Wardlaw said. “We think the timing is right.”
One sign of industry recovery is the fierce scramble among builders to identify and buy up land that is already zoned and even graded and that can be built on quickly.
“Parcels that can be completed within the next two years are getting scarce,” said Laguna Niguel marketing consultant Timothy Hamilton.
And the price of that land, said Agid, “is being bid up, fast.”
