One Bidder Wins It All at El Toro
The nation’s third-largest home builder won an unprecedented federal auction Wednesday to buy the former El Toro Marine Corps Air Station in Irvine, setting the stage for 3,400 new homes in the heart of Orange County and dashing the last hopes for an international airport there.
Bidding $649.5 million for 3,718 acres, Miami-based Lennar Corp. won the property in an online auction that the Defense Department has pledged to use as a model for the sale of future closed military bases. Previously, closed bases were transferred to local governments at little or no cost.
The auction brought in $124.5 million more than the minimum bids the Navy had set, but the proceeds are far less than the $800 million to $1.2 billion some real estate analysts had expected the land would fetch.
The base’s purchase by Lennar “will serve as a model for cooperation between the federal government, local government and the private sector,” said Irvine Councilman Larry Agran, the architect of the El Toro redevelopment.
“We’re thrilled,” Emile Haddad, the company’s regional president for California, said shortly after the auction closed at 3 p.m. The bidding was extended a week by a spirited daily bout of counteroffers by Lennar and homebuilder Standard Pacific, the only other major bidder.
The auction, however, does not resolve questions about how much it will cost the Navy to clean up parts of the base that are still off-limits because of contamination. For decades, the military allowed toxic materials such as cleaning solvents to seep into the ground. The Navy has estimated the cost of cleaning El Toro at about $300 million, but some experts have said it may cost much more if more contamination is found during development.
With the sale, the Navy will recover about half the money it has spent on the base’s closure, including the more than $1-billion cost of moving Marines from El Toro.
The Navy had asked for $525 million in minimum bids and required bidders to put up cash or letters of credit to enter the auction. The money will help fund cleanup of closed military bases nationwide, including El Toro. About 30 bases have been closed in California since 1988.
Navy officials said they were pleased with the auction results.
“The Navy, local citizenry and federal taxpayers all benefited,” Wayne Arny, assistant secretary of the Navy for installations and environment, said in a prepared statement. “This process serves as an excellent example of how the Navy plans to partner with other cities in the future to transfer or sell properties that have been closed through the [base closure] process.”
Kudos also came from Rep. Christopher Cox (R-Newport Beach), who first proposed selling the base to the highest bidder in 1993, when El Toro was listed for closure. “This auction raised more money than the military received for all four base closure rounds combined” nationwide, he said.
Based on its price per acre when compared with other Orange County parcels, Lennar did well for itself, said John Burns, an Irvine-based building industry consultant.
“Lennar spent a ton of money and time” researching the El Toro transaction, Burns said. “In my experience, they’re very careful to avoid overpaying.”
El Toro becomes the largest of five major former military bases in California that Lennar will redevelop, including 650 acres at Mare Island Naval Shipyard in Vallejo, 680 acres at Hunter’s Point Naval Shipyard in San Francisco and 440 acres at Treasure Island Naval Base in San Francisco. El Toro is the first base the company has bought outright.
In 2002, Lennar was the winning bidder in partnership with William Lyon Homes for 235 acres of the former Tustin Marine base, paying $208.5 million for land with 550 homes. The homes were demolished to accommodate 1,910 homes.
Lennar’s Haddad said his company spent $2 million over the last 20 months examining all aspects of the El Toro sale. El Toro was the most complex transaction of all the bases, he said, and penciled out best for the developer if it bought the entire base, so the risks could be spread out.
“All of these bases are turning into communities the way the [adjoining] communities themselves envisioned it,” Haddad said.
Though Lennar will buy the entire El Toro base, the company will deed about 40% of the land -- which includes the most heavily polluted portions -- to Irvine for parks, roads, drainage, a 250-acre museum district and other uses.
The rest of the base is slated to become a complex of residential neighborhoods, retail centers, industrial parks, a college campus, a cemetery and a golf course. Lennar will pay the city about $400 million in fees and assessments, including $200 million in assessments to be reimbursed by future buyers.
El Toro was the focus of rancorous controversy for nearly a decade as the county debated whether to turn it into a commercial airport, which voters approved in 1994. Voters in 2002 opted instead for parks and homes. Irvine annexed the base last year.
Since then, the Navy moved steadily toward auctioning the land, requiring any bidder to agree up front to transfer most of the property to Irvine for public uses. One thousand acres of the 4,700-acre base were transferred years ago to the Federal Aviation Administration, which turned it over to the Department of the Interior to manage as a wildlife preserve.
Wednesday’s auction finale came a week after Los Angeles officials made a last-ditch attempt in Washington to stop the Navy from selling the property. L.A. Mayor James K. Hahn revived a 2-year-old city proposal to lease the base through the U.S. Department of Transportation for an airport, an idea rejected twice by Navy officials.
Lennar won the first two El Toro parcels last week after emerging as the only bidder, paying minimum bids of $125 million for a 902-acre section and $60 million for a 202-acre portion. Bidding on the other two parcels was more spirited, with Standard Pacific and a third unidentified bidder jumping in on the largest parcel.
A publicly traded company, Lennar was well-suited to vigorously bid. The company earned $950 million on revenue of $10 billion in its fiscal year ending Nov. 30. It delivered 36,000 homes last year, making it the third-largest home builder in the nation, according to Professional Builder Magazine, behind D.R. Horton and Pulte Homes, respectively.
Lennar is expected to invest more than $1 billion in land acquisition and development fees before breaking ground.
By Tuesday, the third bidder had dropped out and Standard Pacific reached its price limit, said Steve Scarborough, chairman and CEO of Standard Pacific, Orange County’s most prolific home builder.
“I’m sure Lennar will do a tremendous job orchestrating the development,” Scarborough said Wednesday. “There are benefits and advantages to taking on the entire base.”
One of the major considerations for bidders, he said, was the risk that more contamination would be found at El Toro and uncertainty about when the Navy would have the money to complete cleanup efforts. After years of study, state and federal environmental regulators concluded that about one-quarter of the former base could not immediately be sold because of contamination or possible contamination. Transfer of that land will be held in abeyance until the cleanup is completed.
Navy officials and Cox said swift cleanup shouldn’t be a problem because the sales price will be used to complete any final scrubbing needed.
Constructing condominiums, single-family homes and million-dollar mansions, Lennar already is one of the top builders in Southern California, with a 6% market share, and has vowed to expand its stake.
The company is developing the 20,000-home Newhall Ranch development north of Los Angeles and has begun an aggressive push into the Central Valley, including Bakersfield and Fresno.
Times staff writers Daniel Yi and Annette Haddad contributed to this report.
