Luxury home developer Toll Brothers will partner with builder Shea to construct… (Toll Brothers )
Closing a deal that underscores the potential of Southern California's housing recovery, luxury builder Toll Bros. Inc. snapped up a big chunk of land in south Orange County and said it will begin work on a massive master-planned community.
Toll Bros. will partner with builder Shea Homes to construct more than 2,000 homes and apartments in the Baker Ranch development in Lake Forest. Economists and analysts said the involvement of Pennsylvania-based Toll Bros., the largest builder in the luxury niche, was an encouraging sign for the market, jump-starting a long-planned development and infusing it with some high-end cachet.
"It is the most promising news announced since the bust, and since we have had this very slow turnaround," said Patrick Duffy, principal of MetroIntelligence Real Estate Advisors. "This is the first big announcement of this kind where they are going after the upper-end buyer, so I think there is the assumption that people are going to be able to sell their existing homes and pull out their equity to move up."
The 386-acre development site will include 40 acres of open space rising on what Toll Bros. described in its news release as "the last significant portion of the roughly 5,000 acres of land acquired by the Baker and West families in the late 1950s, which has evolved into most of what is today's city of Lake Forest."
The land was sold by the Baker family in a highly competitive deal that probably topped $100 million, according to a person who spoke with other companies that were outbid on the land. Toll Bros. did not announce a sales price.
Orange County's housing market appears to be recovering, with home sales surging 23.1% last month compared with a year earlier and the median price rising 2.4% to $435,000, according to San Diego-based DataQuick.
The market for newly built homes, however, hasn't shown as much strength. Sales of new homes in Orange County fell 4% in May compared with a year earlier, and the median price rose 7.4% to $602,000.
Nevertheless, the Toll Bros. homes will join a market that economists and analysts say is picking up speed. Seth Ring, a Toll Bros. vice president in Orange, said the timing for the project was ideal, with the first homes expected to be on the market in two years after development gets underway in the fall.
"We look at the market near Lake Forest and we see that new-home sales are very strong," Ring said. "What we do is we look at the macro environment and we have to take a risk, but so far we really like the foundation that is there: great schools, good location and the master plan itself."
Toll Bros. and Shea Homes plan to construct more than 1,780 single-family homes and as many as 414 rental units, including several building types priced to attract a broad range of buyers and renters. The development will include an 8.4-acre central park as well as seven smaller neighborhood parks, three private clubs, bicycle paths and walkways.
The homes will compete with nearby developments in Irvine by Irvine Co. and a huge project on the site of the former El Toro Marine Corps Air Station underway by FivePoint Communities Management Inc. called the Great Park Neighborhoods project.
Housing economist John Burns said that the purchase of the land by Toll Bros. was one of the biggest land buys in the region since the market crumbled nearly five years ago and that Orange County is one of the nation's most attractive markets for home builders.
"There was a significant amount of interest," Burns said. "It is a phenomenal location, and these don't come around very often."
The renewed interest in large-scale development of homes in Orange County means that builders are increasingly confident that the move-up market for homes is beginning to recover, said Duffy of MetroIntelligence Real Estate Advisors.
Much of the scarce development in Southern California since housing tanked has been in the Inland Empire, where builders have focused on small, affordable properties that can compete with foreclosures.
Home sales and prices overall in California have been improving this spring, although few experts anticipate a return to the frenetic buying and selling of the bubble years.