COVER STORY, JUNE 2006

URBAN INROADS
National homebuilders come in from the country to target urban infill opportunities in western cities.
Barbara Crane

When the suburban dream of “one family, one house, many subdivisions” started fraying two decades ago under the stress of 2-hour commutes in California’s large metropolitan areas, a few entrepreneurial investors began to see another way: urban infill. That is, demolish unused industrial sites and obsolete shopping centers and build multifamily developments within the urban core. The appetite for this housing grew slowly, but by the late 1990s, a number of factors had combined to realize the promised change in the metropolitan landscape.

Lennar Corporation will develop Astoria Towers at Central Park West in Orange County, California.

“A few years ago, we decided things were changing both on the demand and supply sides of the business,” says Emile Haddad, chief investment officer for Lennar Corporation, which builds 40,000 homes a year. “We saw that urban business was going to be a bigger piece of the pie.”

On the demand side, Haddad points to young families priced out of the suburban market, empty nesters, young professionals wanting an urban lifestyle, wealthy immigrants and foreign buyers desiring homes for their children while they are attending U.S. colleges. On the supply side, he says, “We’re running a huge deficit in green field land approval and land development. It’s creating a need to look to inner cities to produce housing.”

Steve Delva, president of Standard Pacific Homes, Northern California, South Bay division, sees the change reflected in his company’s market strategy as well. “Our division builds 500 homes a year. A year or two ago, we had virtually no attached product. Now they’re a third to a half of our projects on the drawing board.”

The Big Nationals Get Into the Game

A sample of urban infill projects completed within the last 3 years, currently under construction or in the planning stages shows a wide range of configurations. They illustrate how the definition of urban is changing to include not only the downtowns of California’s two largest cities, Los Angeles and San Francisco, but also the centers of cities once considered to be in the suburbs. In addition, they show how national homebuilders may approach urban infill in other western states.

For example, consider KB Urban Inc., a division of KB Home, created in fall 2005. The company plans to break ground in early 2007 on a 54-story condominium and hotel project in downtown Los Angeles. The property is adjacent to Staples Center and within the newly designated LA Live! entertainment district. “Historically, KB Home has not only been a suburban developer,” says Jeffrey Gault, Division President for KB Urban. “The company has developed both master-planned communities in the United States and urban residential mixed-use in France for years. We are focused in the near term on metropolitan Los Angeles, which includes Pasadena, Burbank and Glendale. We’re also interested in San Francisco and Phoenix for urban residential developments.”

Standard Pacific Homes recently completed the 272-unit Axis at Union Station condominium complex, a transit-oriented development in Los Angeles.

They Used to be Suburbs

High rises built by national homebuilders have also been delivered to other urban cores and cities once considered suburban. Lennar Corporation has built three high-rise condominium towers in San Diego, California’s third largest city, which has developed a gentrified, urban downtown during the last 15 years by making the most of urban infill. Orange County, once home to Southern California’s quintessential suburbs, has matured and grown economically and ethnically diverse. Lennar will soon be in construction there on two residential, office and retail high-rises on the Jamboree Boulevard corridor near the 405 Freeway.

In addition, large suburban homebuilding companies have entered the urban market in California’s smaller, albeit well-populated, cities. The city of Pasadena reinvented itself as a hip, urban destination, attracting Standard Pacific Homes, which is building Lake-Walnut on the edge of the Lake Avenue business district. Formerly an Italian restaurant and office building, the six-story development will combine 111 loft and live-work condo units with 8,000 square feet of retail.

Taking advantage of those pockets of urban land that have outlived their usefulness, Centex Homes Los Angeles/Central Coast Division saw opportunities in Torrance, Hawthorne and Carson in the L.A. metropolitan area, each approximately 20 minutes from Los Angeles International Airport. Centex Homes constructed 100 townhomes in Torrance on a former oil production site; 280 units in Hawthorne, replacing a former Air Force facility; and 147 multifamily units in Carson on what was previously a run-down retail center. “Those old properties don’t bring anything to the community,” says John Fitzpatrick, senior project manager for Centex. “Housing is more lucrative in terms of property taxes and customers for other businesses. It also makes the community more desirable.”

Hayward, Sunnyvale and Palo Alto in Northern California are also prime sites for multifamily urban infill projects for Standard Pacific Homes. “Because of the overbuilding during the dot-com boom and partially because of industry dynamics, there’s a lot of office and R&D space around the tech centers that we’re converting into new residential uses,” Delva says.

Then there’s “soft urban,” a term used by Bill Pisetsky, vice president of sales and marketing for Shea Homes, Southern California. The company is creating two master-planned communities in the decidedly suburban Orange County city of Aliso Viejo. One of these is Vantis, which Pisetsky says “has a distinct urban flavor by product design — two- and three-story condominiums — and by virtue of being a short walk to nearby office towers or shopping. But they are suburban in their surroundings of primarily residential and rolling green hills.”

Urban Opportunities 

Forays by national homebuilding companies into urban infill markets outside of California are only beginning. Gene Myers, chief executive officer of Denver-based New Town Builders LLC, says, “Some of our urban redevelopment is being done by large real estate companies, but they’re not the large national homebuilders. I think it’s because there are other alternatives. When you look at northern and southern California, where else are they going to go?” To date, most of Denver’s thousands of urban residential units have been planned and built by local investors and real estate companies, similar to the way in which urban infill started in California, says Myers.

Denver’s infill market is getting more attention from national homebuilders though. Standard Pacific Homes, which sold 450 homes in the Colorado market in 2005, has built a community of 120 attached one- and two-story townhomes on the former site of Lowry Air Force Base. Lowry, a 10-minute bus ride from downtown Denver, has become a community of 25,000 people since development began in the mid-1990s. The company is currently beginning construction on Falcon Point, a 72-unit subsidized townhome community within Lowery.

“We’re building townhomes in other markets, but this is the only town center we’re currently building in,” says Rip Reid, senior vice president of Standard Pacific Homes, Colorado Division. “The Lowry town center has a grocery store, several restaurants and quite a few office buildings. We can sell to two market segments at once — attached and single-family — and attract the buyer who is looking for a lifestyle community.”

In Santa Fe, New Mexico, Centex Homes, which builds 40,000 homes nationally each year, will begin construction this month on the 187-unit Rancho Santos. Rancho Santos will consist of 43 three-plexes, two duplexes and 54 single-family homes. “Within walking distance of movie theaters, restaurants, grocery stores and public transportation, it symbolizes what urban living should be about — open spaces and walking trails,” says John Pollock, Santa Fe general manager. “The attached product runs between 1,100 to 1,500 square feet, with very smart designs that maximize space.”

Urban infill has come to downtown Reno, Nevada, with local investor groups converting secondary casinos and old hotels to multifamily housing. “We haven’t chosen to be in that market,” says Kyle Collinsworth, land acquisition manager for Centex Homes, Reno Division. Instead, Centex has focused on neighboring Sparks, where it is building 142 townhomes. “It’s virgin land, but totally encircled by the city,” says Dennis Wigent, operational marketing manager for Centex Homes, Reno. The company is also building the 48-unit Governor’s Square, located four blocks from the capitol in Carson City.

Several factors have spurred urban infill development in northern Nevada, Wigent says. Among these are Reno’s explosive growth and the 35 percent annual increase in housing prices in each of the last 2 years. “Projects that weren’t economically feasible are now,” he says. The market can be viewed as a microcosm of the whole region. Constant population growth in western cities, the increasing desire of some local governments to limit sprawl and ever-higher housing prices may bring large national homebuilders into more western markets with multifamily, urban-infill products.

©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.