Dec022013

Irvine’s Great Park to be covered with 4,606 more homes

The Great Park in Irvine will end up with 4,606 more houses than originally approved, and it will lose 410,000 in commercial space. As a result, FivePoint Communities will receive a tremendous windfall, perhaps even enough to compensate for dramatically overpaying for the property at the peak of the housing bubble. Irvine City Councilman Jeff Lalloway extorted FivePoint for several last-minute financial concessions to compensate for Irvine’s Great Park boondoggle that blew $200 million. FivePoint stood to profit hundreds of millions from the approval of more homes, so they were happy to oblige Mr. Lalloway’s requests. In the end, the reflating housing bubble bailed out bad decisions from both parties over the last ten years.

Great Park go-ahead: Developer’s plan wins

By KIMBERLY PIERCEALL / ORANGE COUNTY REGISTER

Published: Nov. 26, 2013 Updated: Nov. 27, 2013 4:29 p.m.

IRVINE – The Orange County Great Park will have 688 acres of sports fields, a golf course, trails and more along with 4,606 more houses neighboring it after the City Council voted 3-2 early Wednesday in a vote that alters the park’s future.

It was hardly that simple, though.

Mayor Pro Tem Jeff Lalloway, considered the swing vote since he suggested and voted to postpone an earlier vote two weeks ago, maintained his poker face until just before midnight Tuesday.

The Irvine City Council is composed of two Democrats, Larry Agran and Beth Krom, and three Republicans, Steven Choi, Christina Shea, and Jeff Lalloway. For many years, it was controlled by Democrats, but Sukhee Kang took a shot at US Congress last election cycle, and the Irvine Democrats couldn’t field a replacement strong enough to keep control. This shift in power put Republicans in charge, and it put Jeff Lalloway in position of power broker. When Lalloway realized he had the swing vote, he wisely took two weeks to consider what he could leverage FivePoint Communities to provide the city to obtain his approval.

Far from being a corrupt bargain, this is how our political system works. FivePoint desperately wanted to build more houses, particularly since prices for houses rose more than 20% last year. Lalloway wanted to redress the $200,000,000 squandered by his predecessors and make up for the loss of redevelopment fees from the State. For FivePoint the value of this approval runs in the hundreds of millions of dollars; Throwing Lalloway a bone or two is a small price to pay for the value obtained. Did this approval violate some greater public good? That depends on what you think about having 4,606 more homes in Irvine.

That’s when he revealed the conditions he would need met before he would agree to the plan proposed by developer FivePoint Communities to spend about $200 million toward building parts of the Great Park, in return for FivePoint being allowed to build homes on its property east of the park.

“Why not lay my cards out on the table?” Lalloway said. …

Lalloway wanted the city to assume control of the park features right away once FivePoints begins to finish them starting in 2016. FivePoint had proposed handling the operations and maintenance through 2023, spending an estimated $10 million. Now, instead, FivePoint will pay the city $10 million over time.“I will defend to the death Irvine’s ability to run its parks,” Lalloway said before the vote.

When Irvine was first being developed, the many parks were turned over to the city to operate. When Donald Bren took over development in the late 70s, the parks all remained under control of private HOAs. Apparently, Lalloway prefers the public park model.

Lalloway also wanted more improvements to Marine Way, the primary entrance to the park off Sand Canyon Avenue north of I-5. FivePoint already is obligated to make substantial improvements to the road, but the developer agreed to provide an additional $10 million worth of work on the entry’s right of way starting in 2018 to satisfy Lalloway.

An additional $20M in concessions is a good deal for the city, but it’s a small fraction of what FivePoint stands to make from gaining Lalloway’s approval.

“I’m not really happy about it,” Choi said of Lalloway’s last-minute additions.

Choi and Shea had been ardent supporters of FivePoint’s proposal. Shea questioned the need for the city to seize control of the operations and maintenance of the park features right away without really researching what it would cost the city.

“It’s a big switch,” she said.

Choi and Shea likely made private assurances to Haddad only to be upstaged by Lalloway’s last-minute theatrics. They need to make public statements distancing themselves from Lalloway, but privately, I imagine they cheered him on. Lalloway did get more for the city, and it cost them nothing.

Still, she voted in favor of the motion along with Lalloway’s additions, as did Lalloway and Choi. The three, part of a political alliance that had fractured in recent months, also voted in favor of certifying the developer’s environmental impact report and to grant it a general plan amendment and zone change allowing the company to build 4,606 homes instead of 410,000 square feet of commercial space.

The developer still plans to develop nearly 5 million square feet of commercial and mixed-use development east of the park. Council members Larry Agran and Beth Krom voted not to approve the environmental report, the amendment and zone change and FivePoint’s proposal to build more than half of the Great Park.

Note that they gave up less than 8% of the total commercial space in order to obtain the extra 4,606 homes. The value of FivePoint surrendered is negligible compared to what they obtained.

A private developer, Lennar, bought all of the land and gave Irvine more than 1,000 acres for a park. The city sought a designer and chose New York landscape architect Ken Smith, who crafted a master plan in 2007 for a park that was expected to cost $1.4 billion to build.The city had its hopes set on redevelopment funding to pay for it, but redevelopment disappeared in early 2012.

The City of Irvine was in a difficult spot. The funds to create their grandiose ideas disappeared with a stroke of Jerry Brown’s pen. This left them few good options for creating a park. Realistically, the developer was the only potential source of funding. Approving 4,606 more homes was the necessary price to pay for obtaining the needed funds.

In the ensuing years, the city spent a majority of some $200 million it received in developer fees to build the park and the developer struggled amid the Great Recession.

(See: Irvine’s Great Park boondoggle blows $200 million)

FivePoint emerged as a spinoff of Lennar.

After the meeting, Lalloway called FivePoint the city’s partner.

Krom called the process “sloppy” during the meeting and likened it to a leg amputation gone wrong. Better a swift single slice than a messy operation, she said.

Agran, who showed concern about the location of a proposed fifth high school, also said he didn’t like the golf course and that the city would be stuck with it if they approved the deal with FivePoint.

It’s hard to discern whether Krom and Agran actually disapproved. By casting no votes, they elevated Lalloway to the position of power necessary to extort more money from FivePoint. My guess is their opposition was orchestrated for this effect.

He asked FivePoint representative Myers if the developer would consider giving it up and removing it from the design.

“The answer is no. Unequivocally,” Myers said.

FivePoint has said it added the golf course when a city subcommittee suggested the developer come up with a way to make the park financially self-sufficient. The golf course could support some areas of the park that wouldn’t be taking in any revenue.

Lalloway also said he wanted the location of a proposed golf clubhouse moved, although he didn’t indicate where. Myers assured him, though, that the city could ask that it be moved at a later time. …

I find any proposal to remove golf courses distasteful. Of course, being a golfer, I am extremely biased in my views.

The proposal has sharply divided the council and public. There are those wanting to see the park built sooner rather than later and those who want to stick to a master plan that has so far resulted in 76 developed acres, a helium balloon ride, carousel and four soccer fields, among other features. An additional 105 acres have been developed as farm land by A.G. Kawamura’s Orange County Produce.Early in the meeting, Lalloway said he would do what was best for the residents of Irvine, “and I will not bow to political pressure. Period.

That’s some great political posturing. Jeff Lalloway is the man, right?

Actually, he did extort some good concessions out of Haddad and Five-Point. Did he get enough given the benefit accruing to FivePoint? I don’t know. You tell me.

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Still at 2004 pricing in Lake Forest

The better properties in the more desirable communities have reflated back to the peak; however, marginal properties in marginal neighborhoods are still struggling to find their footing. Today’s featured property is asking less than its 2004 sale price.

28381 PUEBLO Dr Lake Forest, CA 92679

$399,900 …….. Asking Price
$457,000 ………. Purchase Price
7/22/2004 ………. Purchase Date

($57,100) ………. Gross Gain (Loss)
($31,992) ………… Commissions and Costs at 8%
============================================
($89,092) ………. Net Gain (Loss)
============================================
-12.5% ………. Gross Percent Change
-19.5% ………. Net Percent Change
-1.4% ………… Annual Appreciation

Cost of Home Ownership
——————————————————————————
$399,900 …….. Asking Price
$13,997 ………… 3.5% Down FHA Financing
4.38% …………. Mortgage Interest Rate
30 ……………… Number of Years
$385,904 …….. Mortgage
$116,591 ………. Income Requirement

$1,928 ………… Monthly Mortgage Payment
$347 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$83 ………… Homeowners Insurance at 0.25%
$434 ………… Private Mortgage Insurance
$220 ………… Homeowners Association Fees
============================================
$3,012 ………. Monthly Cash Outlays

($437) ………. Tax Savings
($519) ………. Principal Amortization
$22 ………….. Opportunity Cost of Down Payment
$70 ………….. Maintenance and Replacement Reserves
============================================
$2,148 ………. Monthly Cost of Ownership

Cash Acquisition Demands
——————————————————————————
$5,499 ………… Furnishing and Move-In Costs at 1% + $1,500
$5,499 ………… Closing Costs at 1% + $1,500
$3,859 ………… Interest Points at 1%
$13,997 ………… Down Payment
============================================
$28,854 ………. Total Cash Costs
$32,900 ………. Emergency Cash Reserves
============================================
$61,754 ………. Total Savings Needed
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