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O.C. project delays may be tied to housing slump

Homes that are key to Irvine's Great Park and Anaheim's A-Town are being pushed back.

September 22, 2007|Tony Barboza and Dave McKibben | Times Staff Writers

The housing market slump appears to be taking a toll on two signature Orange County projects -- the efforts to create a vibrant downtown near Anaheim's sports venues and the much-anticipated plan to build a mammoth urban park on the old Marine base in Irvine.

In Anaheim, city officials were alerted last week that Lennar Corp., one of the nation's largest home builders, will halt construction on A-Town for up to a year, slowing progress on the centerpiece of what some are calling the city's new downtown.

In Irvine, Lennar's plans to build thousands of homes around the planned Orange County Great Park have been pushed back, and the city has not received an updated timeline from the developer since 2005.

City officials said Lennar had projected that it would have 781 homes for sale by next year, though the developer said it vowed only to have that number of home sites ready for construction.

A plan unveiled by Lennar last summer to nearly triple the number of homes from 3,625 to 9,500, while cutting back on commercial space and adding 400 acres to the park, hasn't even been discussed with city officials.

The delay, according to a report by City Manager Sean Joyce, is a result of disagreements about Lennar's obligations to the city under a development agreement signed in 2005, among other things.

Residential and commercial development is critical for the creation of the park. City officials are counting on property taxes to turn the El Toro Marine base into a 1,347-acre municipal park that designers compare to Manhattan's Central Park or Balboa Park in San Diego.

Although Great Park officials and designers said their funding was safe for now -- they have $160 million in the bank from $200 million in development fees paid by Lennar -- prolonged delays in home construction could slow the pace of construction of the park itself.

"The speed that the park is going to get built in will be directly proportional to the velocity of home sales," said Yehudi Gaffen, president of Gafcon, the project manager for the Great Park Design Studio.

According to the Great Park's working financial plan, the housing market slowdown may cause the city to revise its revenue projections, and the city and Lennar have both acknowledged that the development schedule has slipped from the original plan.

Emile Haddad, Lennar's chief investment officer, said the company was at best a year away from evaluating whether it would proceed with home construction at the Great Park or decide the market was not right for it.

But Haddad denied that the housing slump had affected the pace of home building in the Great Park project.

The prospect of a slowdown prompted one Irvine City Council member to ask the City Manager to address rumors that Lennar might sell off the land completely.

In a memo to Irvine officials early this month, Councilwoman Christina Shea asked if the city had any knowledge of efforts by Lennar to sell off its property, asking the city's financial staff to begin to develop contingency plans.

"Looking at the housing market, it creates frustration and suspicion that our partnership is not functioning as it should be," Shea said.

Lennar, the master developer in both projects, reported a loss in the second quarter and is expected to do so again when third-quarter results are released next month.

In the short term, the company has seen its profit margins erode and revenues decline. Meanwhile, the builder has cut back on housing starts by more than 50% year over year as it concentrates instead on selling homes already under construction.

Jitters about delays in Irvine have raised broader questions about Irvine's dependence on a single developer to fund the design and construction of the billion-dollar public park.

Lennar has received no significant return on the $1 billion it has invested in the former Marine base, including $650 million to purchase the property from the Navy in 2005 and $200 million in developer fees to the city of Irvine.

The project is one of the company's largest.

Lennar officials said they have the strength of five investment partners, which formed Heritage Fields LLC to develop the base, and said they expected the sale of homes around the park to be profitable in the long-term.

And although Lennar and Irvine say they want the park built as quickly as possible -- the city needs Lennar to build homes to fund the park and Lennar wants to use the park as the backdrop and selling point for its homes -- the immediate problem, market analysts say, is that it may not be in Lennar's interest to move forward swiftly, especially with home prices down and buyers reluctant.

In Anaheim, Lennar officials acknowledged that they might be forced to delay their project in the heart of Anaheim's Platinum Triangle -- a sprouting urban village where some 9,000 homes are planned within five to 10 years.

But they say a final decision on A-Town, which is to contain 2,700 condos, lofts and town homes, won't come for a few months.

"We're living in a constrained environment from a mortgage point of view," Haddad said. "It might eventually happen that we'd have to delay things, but we haven't made that decision yet. The Platinum Triangle is a prime location, and the last thing we want to do is push out a product that's not accepted into this environment."

But Sheri Vander Dussen, planning director for Anaheim, said a Lennar official told her last week that the city should expect a "nine- to 12-month slowdown" on A-town.

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tony.barboza@latimes.com

david.mckibben@latimes.com

Times staff writer Annette Haddad contributed to this report.

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