Jan202014

Will the homebuilder at San Clemente’s Marblehead make money?

Homebuilders bidding on the Marblehead property on the coast in San Clemente are overbidding in anticipation of another year of rapid appreciation.

A prime piece of Coastal California real estate is for sale, and the homebuilders vying for the opportunity to erect sticks and bricks on the site are bidding heavenly sums. In any competitive bidding situation, the bidding party with the most aggressive assumptions wins the day. The large homebuilders all face the same basic cost challenges, so it’s the one with the most aggressive assumptions on future home price revenues who will ultimately get this property. If those assumptions don’t come to pass, they won’t make any money, and they just might lose a bundle.

Lehman Puts California Coastal Property on the Market

By Nadja Brandt Jan 3, 2014 10:14 AM PT

Lehman Brothers Holdings Inc. is seeking to sell 196 acres (79 hectares) of California coastal land that has approvals for residential development and was the subject of a legal fight.

Bids for the Orange County land known as Marblehead Coastal, which has 308 entitled home lots, are due by Jan. 15, according to Terry Ruckle, a principal at Irvine, California-based Land Advisors Organization, which is brokering the sale for Lehman. He declined to say how much the New York-based company expects to get for Marblehead.

An increase in California property values is driving up interest in development land in the southern part of the state, where lots are scarce. Homes in California sold for a median of $360,000 in November, up 24 percent from a year earlier and the 21st consecutive month of annual price gains, according to DataQuick, a San Diego-based real estate data provider.[dfads params=’groups=165&limit=1′]

“With land prices steadily improving over the past few years, and available development opportunities in Orange County being of short supply, Marblehead is experiencing considerable activity,” Ruckle said in a telephone interview. “Marblehead is one of the last large-production homebuilding opportunities along the coast with these kinds of ocean views.”

Lehman and a former partner spent $280 million to $300 million purchasing and improving the Marblehead property, including building streets and installing sewage and drainage systems, according to a person familiar with the land who asked not to be identified because the information isn’t public.

Basically, Lehman Brothers paid bubble prices and the collapse of home prices cut it’s value in half. This property was part of the Lehman bankruptcy, and the trustees benefited from the recent rapid appreciation and extra degree of kool aid intoxication; if this sale had gone forward two years ago, the baseline home sales price would have been much lower, and the bidding would have been far less kool-aid intoxicated.

Four finalists in the running for coastal California’s Marblehead

A winner in the Marblehead sweeps could come as soon as next week

By JOHN MCMANUS — January 17, 2014

The high-profile 196-acre Marblehead project in coastal Southern California San Clemente is down to four finalists, all home builders, after 11 entities submitted their bids this past Wednesday.

Word is, one of the four bidders–a joint bid by Standard Pacific and Brookfield Residential, and three individual offers from Taylor Morrison Homes, The New Home Company, and Toll Brothers–will win the 300-plus lot site for what informed observers could range from $210 million to $230 million. A winner could emerge as early as Tuesday of next week.

One of the executives whose company is active in the bidding said, “I think the pricing is getting a little silly.”

When you talk to land acquisition guys, one theme emerges: everyone who outbids them is overpaying; of course, everyone in turns points that same finger at everyone else. The never point in the mirror.

Marblehead is a poster-child for how select tracts may actually sell for more than it should from a real estate valuation standpoint, simply by virtue of the need for builders who compete in the highly constrained coastal California markets to outbid one another.

The deal may ‘pencil,'” said the executive with knowledge of the bidding, “but are you going to make any money?

Buying this property is a bet on future appreciation, plain and simple. The builder can’t make money at today’s prices, and probably not at next year’s prices either — unless prices go up another 20% this year. And that’s what this sale is about. Who has the wildest dreams about appreciation?

Toll Brothers, Brookfield, and Standard Pacific all played big roles in bidding for–and in Toll’s case winning–the enormous land parcels in the Shapell and Weyerhaeuserhome building portfolio for $1.6 billion and $2.7 billion respectively.

Toll’s victory in the Shapell deal was for about $307,000 per lot, whereas, at $210 million, the per-lot cost for Marblehead would be more on the order of over $600k.

While we feel it’s off-base to talk about a “real estate bubble,” it’s clear that frothiness at a submarket level has driven lot prices above where fundamentals suggest they should be.

Frothiness was Alan Greenspan’s code word for bubbles, something he later admitted. Although I don’t believe we are in a bubble today, we would have to be in a bubble for the homebuilder to make money on this deal — and that is probably not a bad bet . . . unfortunately.

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[idx-listing mlsnumber=”SW14006203″]

9 NORTHERN PINE Loop Aliso Viejo, CA 92656

$725,000 …….. Asking Price
$445,000 ………. Purchase Price
12/13/2000 ………. Purchase Date

$280,000 ………. Gross Gain (Loss)
($58,000) ………… Commissions and Costs at 8%
============================================
$222,000 ………. Net Gain (Loss)
============================================
62.9% ………. Gross Percent Change
49.9% ………. Net Percent Change
3.7% ………… Annual Appreciation

Cost of Home Ownership
——————————————————————————
$725,000 …….. Asking Price
$145,000 ………… 20% Down Conventional
4.42% …………. Mortgage Interest Rate
30 ……………… Number of Years
$580,000 …….. Mortgage
$143,677 ………. Income Requirement

$2,911 ………… Monthly Mortgage Payment
$628 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$151 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$21 ………… Homeowners Association Fees
============================================
$3,712 ………. Monthly Cash Outlays

($687) ………. Tax Savings
($775) ………. Principal Amortization
$235 ………….. Opportunity Cost of Down Payment
$111 ………….. Maintenance and Replacement Reserves
============================================
$2,596 ………. Monthly Cost of Ownership

Cash Acquisition Demands
——————————————————————————
$8,750 ………… Furnishing and Move-In Costs at 1% + $1,500
$8,750 ………… Closing Costs at 1% + $1,500
$5,800 ………… Interest Points at 1%
$145,000 ………… Down Payment
============================================
$168,300 ………. Total Cash Costs
$39,700 ………. Emergency Cash Reserves
============================================
$208,000 ………. Total Savings Needed
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