What if Bren did not buy the Irvine Company?

NEW -> Contingent Buyer Assistance Program
[quote author="freedomCM" date=1226219298]I wonder though...



TIC could sit on the remaining land (and it is limited now that they've deeded most of the remaining coastal and mountain land to the IRLR) for another 50 years, living off their profits from the CRE and apartments. Why do they need to sell now with such a long time horizon?</blockquote>


There are serious risks to just sitting on developable, entitled land. First, it becomes more difficult and costly to develop over time. Sales prices go up and down over time, but costs generally only go up. Second, entitlements can be challenged in court. TIC may believe their entitlements are good forever, but you should never underestimate the power of NIMBYs to thwart new development. Third, affordable housing quotas are likely to get worse. If they wait 50 years to develop, they might find themselves under a number of price controls or other government mandates cutting in to their profits. Fourth, fees always go up. The impact fees and other government extractions are bound to increase over time and decrease their profits. Fifth, Environmental regulations will get more restrictive, and they may find land that is developable today is not developable tomorrow regardless of what entitlements they have.



At some point, they will realize the market is not coming back, and that they were foolish not to get what they could while they could. They will start to look at the future risks and decide that waiting another 20 years to sell land isn't worth it.
 
[quote author="IrvineRenter" date=1226237549][quote author="freedomCM" date=1226219298]I wonder though...



TIC could sit on the remaining land (and it is limited now that they've deeded most of the remaining coastal and mountain land to the IRLR) for another 50 years, living off their profits from the CRE and apartments. Why do they need to sell now with such a long time horizon?</blockquote>


There are serious risks to just sitting on developable, entitled land. First, it becomes more difficult and costly to develop over time. Sales prices go up and down over time, but costs generally only go up. Second, entitlements can be challenged in court. TIC may believe their entitlements are good forever, but you should never underestimate the power of NIMBYs to thwart new development. Third, affordable housing quotas are likely to get worse. If they wait 50 years to develop, they might find themselves under a number of price controls or other government mandates cutting in to their profits. Fourth, fees always go up. The impact fees and other government extractions are bound to increase over time and decrease their profits. Fifth, Environmental regulations will get more restrictive, and they may find land that is developable today is not developable tomorrow regardless of what entitlements they have.



At some point, they will realize the market is not coming back, and that they were foolish not to get what they could while they could. They will start to look at the future risks and decide that waiting another 20 years to sell land isn't worth it.</blockquote>
Not to mention the impact of NPV calculation (time value of money). I think once they realize that land prices won't be coming back up to 2005/2006 levels for a very long time, they'll begin selling the land.
 
[quote author="usctrojanman29" date=1226238745][quote author="IrvineRenter" date=1226237549][quote author="freedomCM" date=1226219298]I wonder though...



TIC could sit on the remaining land (and it is limited now that they've deeded most of the remaining coastal and mountain land to the IRLR) for another 50 years, living off their profits from the CRE and apartments. Why do they need to sell now with such a long time horizon?</blockquote>


There are serious risks to just sitting on developable, entitled land. First, it becomes more difficult and costly to develop over time. Sales prices go up and down over time, but costs generally only go up. Second, entitlements can be challenged in court. TIC may believe their entitlements are good forever, but you should never underestimate the power of NIMBYs to thwart new development. Third, affordable housing quotas are likely to get worse. If they wait 50 years to develop, they might find themselves under a number of price controls or other government mandates cutting in to their profits. Fourth, fees always go up. The impact fees and other government extractions are bound to increase over time and decrease their profits. Fifth, Environmental regulations will get more restrictive, and they may find land that is developable today is not developable tomorrow regardless of what entitlements they have.



At some point, they will realize the market is not coming back, and that they were foolish not to get what they could while they could. They will start to look at the future risks and decide that waiting another 20 years to sell land isn't worth it.</blockquote>
Not to mention the impact of NPV calculation (time value of money). I think once they realize that land prices won't be coming back up to 2005/2006 levels for a very long time, they'll begin selling the land.</blockquote>


That?s what I don?t understand; their basis on the land is essential zero.

Why not build and sell homes at a lower price point?

They?d still make big money.

Instead, they?re holding out only to resume building when they can get top dollar once again.

This strategy is absurd and will back-fire on them.
 
[quote author="tenmagnet" date=1226365936][quote author="usctrojanman29" date=1226238745][quote author="IrvineRenter" date=1226237549][quote author="freedomCM" date=1226219298]I wonder though...



TIC could sit on the remaining land (and it is limited now that they've deeded most of the remaining coastal and mountain land to the IRLR) for another 50 years, living off their profits from the CRE and apartments. Why do they need to sell now with such a long time horizon?</blockquote>


There are serious risks to just sitting on developable, entitled land. First, it becomes more difficult and costly to develop over time. Sales prices go up and down over time, but costs generally only go up. Second, entitlements can be challenged in court. TIC may believe their entitlements are good forever, but you should never underestimate the power of NIMBYs to thwart new development. Third, affordable housing quotas are likely to get worse. If they wait 50 years to develop, they might find themselves under a number of price controls or other government mandates cutting in to their profits. Fourth, fees always go up. The impact fees and other government extractions are bound to increase over time and decrease their profits. Fifth, Environmental regulations will get more restrictive, and they may find land that is developable today is not developable tomorrow regardless of what entitlements they have.



At some point, they will realize the market is not coming back, and that they were foolish not to get what they could while they could. They will start to look at the future risks and decide that waiting another 20 years to sell land isn't worth it.</blockquote>


Not to mention the impact of NPV calculation (time value of money). I think once they realize that land prices won't be coming back up to 2005/2006 levels for a very long time, they'll begin selling the land.</blockquote>


That?s what I don?t understand; their basis on the land is essential zero.

Why not build and sell homes at a lower price point?

They?d still make big money.

Instead, they?re holding out only to resume building when they can get top dollar once again.

This strategy is absurd and will back-fire on them.</blockquote>


I don't think they are holding out for top dollar. If they build houses and sell them for the cheap then the resale of properties will be reduced, Irvines reputation will be impaired and the TIC will be forced to reduce the price on its rental properties (both commercial and private).



In my opinion selling houses is secondary for the TIC.
 
[quote author="Stuff It" date=1226368825][quote author="tenmagnet" date=1226365936][quote author="usctrojanman29" date=1226238745][quote author="IrvineRenter" date=1226237549][quote author="freedomCM" date=1226219298]I wonder though...



TIC could sit on the remaining land (and it is limited now that they've deeded most of the remaining coastal and mountain land to the IRLR) for another 50 years, living off their profits from the CRE and apartments. Why do they need to sell now with such a long time horizon?</blockquote>


There are serious risks to just sitting on developable, entitled land. First, it becomes more difficult and costly to develop over time. Sales prices go up and down over time, but costs generally only go up. Second, entitlements can be challenged in court. TIC may believe their entitlements are good forever, but you should never underestimate the power of NIMBYs to thwart new development. Third, affordable housing quotas are likely to get worse. If they wait 50 years to develop, they might find themselves under a number of price controls or other government mandates cutting in to their profits. Fourth, fees always go up. The impact fees and other government extractions are bound to increase over time and decrease their profits. Fifth, Environmental regulations will get more restrictive, and they may find land that is developable today is not developable tomorrow regardless of what entitlements they have.



At some point, they will realize the market is not coming back, and that they were foolish not to get what they could while they could. They will start to look at the future risks and decide that waiting another 20 years to sell land isn't worth it.</blockquote>


Not to mention the impact of NPV calculation (time value of money). I think once they realize that land prices won't be coming back up to 2005/2006 levels for a very long time, they'll begin selling the land.</blockquote>


That?s what I don?t understand; their basis on the land is essential zero.

Why not build and sell homes at a lower price point?

They?d still make big money.

Instead, they?re holding out only to resume building when they can get top dollar once again.

This strategy is absurd and will back-fire on them.</blockquote>


I don't think they are holding out for top dollar. If they build houses and sell them for the cheap then the resale of properties will be reduced, Irvines reputation will be impaired and the TIC will be forced to reduce the price on its rental properties (both commercial and private).



In my opinion selling houses is secondary for the TIC.</blockquote>
I do think that them not selling any additional land and limiting new construction in Irvine Ranch is articially keeping Irvine homes prices from falling off a cliff, at least for now.
 
I think they have a history of waiting to get top dollar. Someone told me once that Shady Canyon was supposed to be developed 10-15 years earlier (according to the City's Master Plan), just about the same time the last real-estate market crashed.
 
For all of those wanting TIC to sell more land, who are they going to sell it to? Which homebuilders out there do you think are in the market to buy land? None. There is absolutely zero market for it right now. Homebuilders are in survival mode, liquidity preservation mode...they have no ability to raise cash for land acquisitions.



The only people buying land are vulture funds and land speculators and why would TIC sell to them? TIC is essentially playing the land speculator role themselves.
 
[quote author="Joe33" date=1226372541]For all of those wanting TIC to sell more land, who are they going to sell it to? Which homebuilders out there do you think are in the market to buy land? None. There is absolutely zero market for it right now. Homebuilders are in survival mode, liquidity preservation mode...they have no ability to raise cash for land acquisitions.



The only people buying land are vulture funds and land speculators and why would TIC sell to them? TIC is essentially playing the land speculator role themselves.</blockquote>


Unlike many sub-markets in Riverside County where residual land values are negative, a builder can still assemble a house and sell it for more than it cost them to produce in Orange County, <em>if land prices were low enough</em>. Land is a commodity input just like lumber or flooring. There is still residual land value in OC, it just isn't as much as TIC would like it to be, so they are choosing not to sell it.
 
[quote author="IrvineRenter" date=1226372881][quote author="Joe33" date=1226372541]For all of those wanting TIC to sell more land, who are they going to sell it to? Which homebuilders out there do you think are in the market to buy land? None. There is absolutely zero market for it right now. Homebuilders are in survival mode, liquidity preservation mode...they have no ability to raise cash for land acquisitions.



The only people buying land are vulture funds and land speculators and why would TIC sell to them? TIC is essentially playing the land speculator role themselves.</blockquote>


Unlike many sub-markets in Riverside County where residual land values are negative, a builder can still assemble a house and sell it for more than it cost them to produce in Orange County, <em>if land prices were low enough</em>. Land is a commodity input just like lumber or flooring. There is still residual land value in OC, it just isn't as much as TIC would like it to be, so they are choosing not to sell it.</blockquote>
Exploding the cost of land, what would you say is the cost of building let's say a 2,000 SFR in Southern California (you can use dollars/sf as well)?
 
[quote author="IrvineRenter" date=1226372881][quote author="Joe33" date=1226372541]For all of those wanting TIC to sell more land, who are they going to sell it to? Which homebuilders out there do you think are in the market to buy land? None. There is absolutely zero market for it right now. Homebuilders are in survival mode, liquidity preservation mode...they have no ability to raise cash for land acquisitions.



The only people buying land are vulture funds and land speculators and why would TIC sell to them? TIC is essentially playing the land speculator role themselves.</blockquote>


Unlike many sub-markets in Riverside County where residual land values are negative, a builder can still assemble a house and sell it for more than it cost them to produce in Orange County, <em>if land prices were low enough</em>. Land is a commodity input just like lumber or flooring. There is still residual land value in OC, it just isn't as much as TIC would like it to be, so they are choosing not to sell it.</blockquote>


I agree, I am not saying that the land doesn't have residual value.....it does, though a lot less than before. What I am saying is that despite that, there are no builders with the liquidity position to do it. So there is neither a willing seller, nor a willing buyer. Not a good recipe for transactions.
 
[quote author="usctrojanman29" date=1226373187]Exploding the cost of land, what would you say is the cost of building let's say a 2,000 SFR in Southern California (you can use dollars/sf as well)?</blockquote>


The cost of the structure itself for production builders varies between $65/SF to $90/SF depending on size and finishes. It was at the higher end of this range during the bubble, but many cost inputs have fallen in price with the slowdown in construction.
 
[quote author="IrvineRenter" date=1226373320][quote author="usctrojanman29" date=1226373187]Exploding the cost of land, what would you say is the cost of building let's say a 2,000 SFR in Southern California (you can use dollars/sf as well)?</blockquote>


The cost of the structure itself for production builders varies between $65/SF to $90/SF depending on size and finishes. It was at the higher end of this range during the bubble, but many cost inputs have fallen in price with the slowdown in construction.</blockquote>
Thanks for the info, I thought it might have been under $100/sf. Now that I know that information, I think seeing Irvine median homes prices in the $200/sf to $250/sf is a forgone conclusion.
 
[quote author="IrvineRenter" date=1226373320][quote author="usctrojanman29" date=1226373187]Exploding the cost of land, what would you say is the cost of building let's say a 2,000 SFR in Southern California (you can use dollars/sf as well)?</blockquote>


The cost of the structure itself for production builders varies between $65/SF to $90/SF depending on size and finishes. It was at the higher end of this range during the bubble, but many cost inputs have fallen in price with the slowdown in construction.</blockquote>


IR, is that just for the hard construction costs? Does it incude any fees, soft costs or financing costs? Thanks.
 
[quote author="Joe33" date=1226373788][quote author="IrvineRenter" date=1226373320][quote author="usctrojanman29" date=1226373187]Exploding the cost of land, what would you say is the cost of building let's say a 2,000 SFR in Southern California (you can use dollars/sf as well)?</blockquote>


The cost of the structure itself for production builders varies between $65/SF to $90/SF depending on size and finishes. It was at the higher end of this range during the bubble, but many cost inputs have fallen in price with the slowdown in construction.</blockquote>


IR, is that just for the hard construction costs? Does it incude any fees, soft costs or financing costs? Thanks.</blockquote>


That is hard construction costs of the structure itself. That does not include fees, land or land improvements.
 
[quote author="IrvineRenter" date=1226374602] That is hard construction costs of the structure itself. That does not include fees, land or land improvements.</blockquote>


And it also seems to assume a certain economy of scale - I can't imagine a new individual SFR on a tear-down lot having much lower costs than $220/sqft all-in.
 
Think about how tic operates. They should always wait until prices are back higher. Why crash your future sells? It is like blackberry selling pearls 50 percent lower since sales have slowed. That might not be a good example since cellphone prices fall over time. One example of how companies lowering prices is by introducing another lower price brand similar to what Kodak did or what Wrigley gum does.



Irvine co has minimal fixed costs for their inbuilt homes so they are not like auto manufacturers that absolutely have to reduce prices. Also tic loves to sprinkle rental apartments with new home developement, so why build new homes and depress their rental rates with more iac apartments?
 
So they hedged themselves with Rental Apartments versus Home Sales?

Now this is more corporate thinking.



[quote author="etheran" date=1226386382]Think about how tic operates. They should always wait until prices are back higher. Why crash your future sells? It is like blackberry selling pearls 50 percent lower since sales have slowed. That might not be a good example since cellphone prices fall over time. One example of how companies lowering prices is by introducing another lower price brand similar to what Kodak did or what Wrigley gum does.



Irvine co has minimal fixed costs for their inbuilt homes so they are not like auto manufacturers that absolutely have to reduce prices. Also tic loves to sprinkle rental apartments with new home developement, so why build new homes and depress their rental rates with more iac apartments?</blockquote>
 
If Bren did not take over TIC this this blog might be called Mission Viejo Housing Blog. The Irvine family was mostly philanthropist and knew some good planning but not calculating enough in branding Irvine. The older Irvine family projects were Deerfield, El Camino, College Park, University Village, and 2 outstanding projects: Turtle Rock and Woodbridge. We would see mostly wood sidings and shingle roofs instead of stucco walls and tile roofs.
 
[quote author="bkshopr" date=1226391827]If Bren did not take over TIC this this blog might be called Mission Viejo Housing Blog. The Irvine family was mostly philanthropist and knew some good planning but not calculating enough in branding Irvine. The older Irvine family projects were Deerfield, El Camino, College Park, University Village, and 2 outstanding projects: Turtle Rock and Woodbridge. We would see mostly wood sidings and shingle roofs instead of stucco walls and tile roofs.</blockquote>


There is no question that the Irvine Company has done a fantastic job creating a great community. There would be no premium for living in Irvine if they hadn't. However, the premium is not as large as they think it is.
 
Nor as little as we want it to be.



[quote author="IrvineRenter" date=1226392978]

There is no question that the Irvine Company has done a fantastic job creating a great community. There would be no premium for living in Irvine if they hadn't. However, the premium is not as large as they think it is.</blockquote>
 
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