News Column

Home Construction Industry Building Momentum

August 10, 2014

By Debra Gruszecki, The Press-Enterprise, Riverside, Calif.

After a prolonged construction downturn, new home construction is on the rise in California's Inland Empire. (AP)
After a prolonged construction downturn, new home construction is on the rise in California's Inland Empire. (AP)

The market has awakened.

Across the Inland region, developers are looking with renewed interest at thousands of acres where residential communities were approved or under construction when the recession hit -- but never finished.

From Temecula and Riverside to Redlands and Ontario and beyond, construction crews are at work on developments that had languished for years as the Inland region crawled through economic hard times.

"The economy has come to a good place," said Steve Ruffner, president of KB Home, Southern California. The company's earthmoving equipment and construction workers are restarting work at Spring Mountain Ranch, a 785-acre master-planned development northeast of Riverside.

KB bought two parcels with 247 lots in the Mission Gate communities of Spring Mountain from iStar Financial Corp., the investor/owner that plucked the development from the mothballs. KB plans to open six model homes in the Pigeon Pass area development within 45 days.

An information trailer opened for preconstruction sales in early August.

"We've always had a big focus on the Inland Empire, especially Riverside County," Ruffner said. "There's a lot of opportunity to engage in housing that's affordable. With the current interest rates as they are, and the job situation improved, we feel like now is the time to act on land we started buying 24 months ago."

The homebuilder isn't moving earth alone.

Other developments that idled through the recession are showing new signs of life, include Audie Murphy Ranch in Menifee, Roripaugh Ranch in Temecula and the $1 billion La Entrada development proposed on 2,200 acres near Coachella.

No one is saying that home construction has rebounded, however. New building permits are being issued in modest numbers. But Bill Blankenship, the Building Industry Association of Southern California's chief executive for the Riverside County chapter, said an industry that was knocked to the floor in the Great Recession is preparing for recovery.

"No one believes we're sliding backward anymore," Blankenship said.

MAKING A MOVE

While Blankenship's assessment is restrained, homebuilders last year began to put crews to work clearing rattlesnakes and tumbleweeds from unfinished homes abandoned in the downturn.

Billboards began popping up to call attention to forgotten spots, like Painted Hills at JP Ranch in Calimesa and Luz del Sol in San Jacinto.

Now, the vinyl billboards compete for attention on Inland commuter corridors.

The Gimutao family picked up the cues.

"We came in from San Diego," Gina Gimutao said, as she stood in the doorway of a new Frontier Communities' home she purchased in the Luz del Sol neighborhood of San Jacinto. "The economy's gotten better, so we felt good about making the move. We like the fact this is new.

"We don't have to fix anything. It's great to get out of a rental."

Frontier Communities in mid-July opened four decorated model homes in the revived 151-home Luz del Sol project.

The company, based in Rancho Cucamonga, bought the partially built development on the courthouse steps for roughly 60 cents on the dollar a little more than a year ago. Thirty homes are under construction, said Randy Tasch, Frontier vice president and broker.

"We had more than 1,000 people turn out for our grand opening, so it's great to see movement in a spot of the city that had once been desolate," he said. "It's a breath of fresh air."

It's also a sign that economic recovery is at the region's doorstep, he said.

Luz del Sol is one of 15 projects Frontier Communities is working on in Fontana, Moreno Valley, Ontario, San Bernardino and Rialto, Tasch said. "Altogether, we have 260 homes under construction" on some of the 3,000 lots the company acquired in the past couple of years.

The company also wants to acquire lots in new master-planned developments such as Spring Mountain Ranch. "We're looking at 200 to 300 lots in locations like these," he said.

READY FOR RECOVERY

The revived Luz del Sol community is only a few miles from the still-shuttered Maravilla Estates of San Jacinto, where dead landscaping, ripped-out wiring and a guardhouse with broken windows are lingering evidence of the region's slow slog out of the recession.

"Everybody vacated the city," Tasch observed, and now homebuilders and real estate investors are snapping up abandoned projects in bigger numbers. "We were the pioneers in San Jacinto. Now, homebuilders are trying to come out and catch up with us. I'd say we're one of the post-recession pioneers out here."

Another company that started acquiring defunct developments early was HighPointe Communities of Aliso Viejo, which bought the 268-lot Painted Hills project in Calimesa from Wells Fargo. Painted Hills, which included 44 homes in some stage of completion, is getting prepped for new construction.

Steve Vliss, HighPointe's president and CEO, said the company sold all 44 homes and is under contract to sell 65 finished lots to a national homebuilder that plans to start construction in September or October.

"We are evaluating development opportunities throughout the Inland Empire," Vliss said, mentioning plans in Chino and Loma Linda.

HighPointe, like many others, focused during the downturn on getting ready for the recovery. Some managed to hang onto land during the recession, and other property has been acquired through auctions, trades or post-foreclosure sales. Now lots are being bought and sold in anticipation of building.

Since 2010, HighPointe has sold more than 300 lots to homebuilders in Temecula, inked deals on another 600 in Riverside and anticipates selling 260 more in Palm Desert.

Tri-Pointe Homes of Irvine in recent months acquired land to build new homes in master-planned areas of Topazridge in Riverside, Sycamore Creek near Corona, and the Parkside and New Model Colony developments in Ontario.

Last week, Tricon Capital Group of Toronto closed a $142.5 million investment to buy Arantine Hills, a 276-acre master-planned community in Corona. Its joint venture partner, The New Home Co., plans to develop and sell the lots to public and private homebuilders.

All of the projects were started before the housing bust and lain idle for years.

"I think the momentum has slowly been building over the last 24 months," Vliss said.

MARKET NERVES

Although economic indicators have pointed to a sustained recovery, a recent U.S. Commerce Department report shows that fewer new homes were sold in recent months than builders expected, suggesting the market is not ramping up as fast as some had hoped. Sales in June declined 8.1 percent in the United States, following an even softer May. The sales rate was 12.3 percent lower than forecasts.

Sales in the West in June fell 1.9 percent from May.

Builders have been sharing anecdotes of buyers were spooked earlier in the year by higher mortgage rates, more expensive housing properties and tough lending rules.

The key word on the lips of most homebuilders these days is patience.

Inland economist John Husing said the talk he's hearing in Building Industry Association circles is that the industry is in a lull.

While developers are snapping up lots and restarting fallowed developments, only 1,811 single-family building permits were issued in the first five months of 2014 in Riverside County. The numbers are up 5 percent in the Coachella Valley and down 2.4 percent in western Riverside County over the same period in 2013.

For all of 2013, only 4,257 single-family home permits were issued in Riverside County. That's better than the 2008 low of 2,794 but far from the 2005 peak, when 22,028 were issued, according to data from the Building Industry Association.

"Compared to previous recoveries, the permit activity is still very weak," Husing said.

"It's still a tough environment," he said, and part of that has to do with buyers' lack of confidence that the economy is fully recovered, flare-ups on Wall Street and conflict overseas.

For the homebuilders and land buyers, Vliss said the code words are "unbridled enthusiasm."

"My instinct is 2015 will be stronger than 2014," Husing said.

Contact the writer: 951-368-9423 or dgruszecki@pe.com

Original headline: INLAND: Home construction industry building momentum


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Source: (c)2014 The Press-Enterprise (Riverside, Calif.) Visit The Press-Enterprise (Riverside, Calif.) at www.PE.com Distributed by MCT Information Services


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