Will Portola Springs Become a Ghost Town?

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GavriloPrincip_IHB

GavriloPrincip_IHB

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Recent comments about Paloma and Las Colinas on this forum indicate that Portola is not moving much inventory or selling new phases. Pardee appears to have pulled out entirely--unverified rumor has it that they will sell the Prado models and be done, and information about Prado has disappeared from the Irvine Company's Portola Springs website. If downward pressure on prices and new home sales continues, will the builders even continue to build here? If not, will Portola languish as a partially-built site? What do you think? Inquiring minds want to know.
 
<p>This has been discussed, partially, in other threads. It seems like a significant risk, if things continue on their current trajectory. The question is whether TIC will actually sit by and not make further adjustments to the land-price basis. I'm sure they are going to be stubborn in not wanting to do so, but ultimately they will capitulate. The spillover effects to their other new communites are big, and TIC is caught in a bind. If they don't make adjustments at PS, it will put a chill on homebuilder interest in their other new communities (Orchard Hills, etc). If they do make adjustments (which I expect over the summer, when it is obvious spring never sprung), then this will also lower prices they are able to command at the new communities. Either way, it comes down to supply (at the prices they prefer) and demand. </p>

<p>Even though TIC has many monopolistic-style advantages, they are not immune from all general market forces. </p>

<p>I am still seeing plenty of print and local cable tv ads for the community, so they haven't given up yet.</p>

<p>SCHB</p>
 
<p>SoCal - </p>

<p>I'm a bit in the dark about the adjustments that TIC can make. Wouldn't most of these land sales from TIC to the developers already be completed? I mean, it seems that the permits to develop, the facility bonds (read future Melo-Roos), etc., would already be approved... as well as the tract-development grids...(what house, where)... if prices fall through, I'm not sure what recourse the developers have to re-negotiate a "done deal" (other than to walk away and forfeit what ever penalty they may)... is it a matter similiar to a buyer forfeiting their earnest money deposit and the seller (TIC) being faced with still trying to unload the land? (at the new lower market price?)</p>

<p>Or are these land sale deals really done so close in time to the actual build out of a community? Take Orchard Hills for example... Is TIC still trying to sell the land to developers (one-year from build-out) or will the ultimate sale of land take place later in the year?</p>
 
Also, I suspect that the City may have something to say about an abandoned project without a bankruptcy. I can't image they want a partially built project languishing - not only for the eyesore effect, but also for the crime potential.





Interesting to hear about Pardee. I have sensed that their $1M+ projects in Ladera and Yorba Linda aren't selling like hotcakes. That said, Prado still shows up on Pardee's own website. I may try to give them a call next week and see if they will confirm or deny the rumor.
 
<p>Several of the PS & Woodbury homebuilders have revealed that their land purchase agreement is all handled through options. They don't actually purchase the next "release" of dirt until they are done or close to done selling the current release (I would assume completely). All the prices are supposed to be pre-ordained in the development plan, to a certain extent. I'm sure there are provisions for re-valuing the land in case of home price increases through the phases (TIC wants to ensure they get their fair share of upside potential). This is likely for HB cash-flow as well as TIC's desire for more $$. In an upward-moving market, it works out relatively well for both parties.</p>

<p>Evidently, the downside scenario may not have been as well-planned for. I'm sure there are provisions that address it, but from what we understand the builders can only lower their prices with TIC approval and/or an actual land-price basis adjustment. My guess would be the HB is allowed to cut into their own profit a bit as long as they pay TIC the agreed land price and don't materially drag down the comps in the market. But at some point, there isn't any more blood to squeeze from the HB's stone, and now if the land price doesn't change, the thing just won't sell because the builder is down to their lowest possible margin.</p>

<p>It has basically been confirmed that a significant re-negotiation (reduction) took place around December 2006 in PS and the Woodbury communities that were not sold through. Just like actual homeowners, though, TIC is very reluctant to lower these prices until it is patently obvious that things are in bad shape, so the effects of these reductions often come late and only cause a small postive blip in sales before things get quiet again, which is where we are now.</p>

<p>I'd be confident that Orchard Hills has some framework in place, and certain land price valuations are being discussed. But there has to be flexibility in these negotiations for what the market will bear when it actually comes time to build, and you can be sure that after writing off so many land options around the country in the last 6-9 months, the homebuilders are going to be much more savvy in negotiating these terms.</p>

<p>SCHB</p>
 
Interesting comment about the just-in-time land purchases. This might explain why Las Colinas has not broken ground for Phase 3 yet. In February the sales office said they would break ground in March, in March they said it would happen in April. In the mean time they did not sell a single Phase 3, and were trying very hard to move the existing Phase 2s. So they might not have broken ground on Phase 3 because they haven't purchased the land yet, and they don't want to purchase it to build houses they won't be able to sell.





As to the December 2006 price reduction rumored to have been approved by the Irvine Company, when I first looked at Portola in early December, Plan 4 at Paloma was selling in the high 900s. Went back the first or second weekend of January, and the Plan 4 prices had dropped by around $107,000! At the time, the sales agents said that the Irvine Company had "approved" a reduction in prices. IIRC, there was a modest reduction ($30k?) in the Las Colinas asking prices. But the required Irvine Company approval would also explain why Taylor Woodrow was willing to negotiate heavily on upgrades and deposits but would not reduce the sticker price in March





It's now been four months since the December price cut, and it doesn't appear to be stimulating sales at Portola. Wonder when the next cut will come, and how deep?
 
Perhaps somebody from TIC should be over here reading what their potential buyers have to say about pricing.





For whatever reason, I have sensed that TIC didn't always price for pure profit alone, but to keep certain "elements" out of Irvine. When the subprime spigot was flowing, such "elements" could qualify for a $500K (or more) home. If you want your luxury SFRs to be for those who earn, say, $200K or more annually (since like prefers to hang with like), then a pricing scheme of 3 x annual income doesn't really work.





Any thoughts?
 
<p>EvalS-</p>

<p>I think that TIC always wants to position themselves as the "premium community"- you pay more to be here, but it is one of the best offerings available. I doubt they were (directly) trying to keep the elements to which you refer out of Irvine, they just wanted to ensure that they continued to get their $$ premium over neighboring cities, and it had the same effect.</p>

<p>Gavrilo-</p>

<p>It definitley explains why several of the communities have not broken ground on their next phase yet. It is worth noting that the homebuilders have got to be frustrated by the situation they are in, otherwise there is no way that they'd let the buying public know how their hands are tied by TIC. These details are usually kept very quiet.</p>

<p>The December reduction did have the effect of stimulating some fence-sitters right after the first of the year. But once those marginal buyers were consumed, it has gotten quiet. As I stated above, the next cut will likely come after the middle of the summer, when it is (beyond) obvious that the spring selling season was a bust. Who knows what the reduction level will be, but it may not be as aggressive as the last cut. The problem with waiting until is it competely obvious is that by then all your buyers have re-calibrated their value scales as well, and the effect is much less than if they made the same reduction now.</p>

<p>This is why 2007 is going to be so interesting.</p>

<p>SCHB</p>
 
Just back from looking at open houses in another section of Irvine. One broker there said something very interesting about Pardee: apparently they did NOT back out of Portola. <em><strong>Instead, the Irvine Company ORDERED them not to open the models or sell houses.</strong></em> He said he had heard this from three different sources.





I'd love to hear everyone's thoughts on TIC's reasons for stopping Pardee but letting Las Colinas and Serra continue selling and building. If this isn't a sign of blood on the floor, I don't know what is.
 
Mello-Roos and HOA question: If TIC has put a halt on letting these communities build out how is Mello-Roos and HOA cost affected?





I would assume that TIC is going to require the homebuilders to finish out building the necessary infrastructure for those communities like Fire Depts, Roads, necessary power and sewage for commercial developement...etc. Since less than expected people will be living in these communities would it not be a wise assumption that the bonds for these developments would be underfunded and that HOAs would also be underfunded?
 
<p>Mello-Roos are bonds or a loan with money collected. This loan can be refinaced for longer term or lower rate anytime.</p>

<p>HOA cost - is a function # of homes. HOA has reserves to cover for lack of members. HOA then can be reaccessed later; which I think is a risk for buying in a delayed community.</p>
 
Ok next question, do builders or RE's have to state this up front during any part of the selling process? I would be pretty t-d' off if I bought a home with $XXX.XX / mth in HOAs only to find out that they are being raised b/c TIC or the builder has backed out of building the rest of the homes.





As for Mello-Roos....since rates are getting lower all they could do would be extend the term...meaning I would have to pay more money.
 
<p><em>HOA has reserves to cover for lack of members</em></p>

<p>Keep in mind that this is not always the case. A special assessment may be collected in the future to repair/upgrade infrastructure as a result of an inadequate "war chest". </p>
 
<p>mino2126 asked:</p>

<p><em>"Ok next question, do builders or RE's have to state this up front during any part of the selling process? I would be pretty t-d' off if I bought a home with $XXX.XX / mth in HOAs only to find out that they are being raised b/c TIC or the builder has backed out of building the rest of the homes."</em></p>

<p>Yes, they state all the time (even in the sales price sheets) that the HOAs are only estimates, subject to change. I'm sure the sales contracts goes into this in further detail.</p>

<p>SCHB</p>
 
Wow!!!! I am alittle shell shocked right now, have only been in the OC for about 1.5yrs I am originally from the Midwest, we never had association fees unless you lived in a condo community for retirees. SCHB...does that also acct for the Bonds?
 
<p>oh mino, you better believe it! </p>

<p>this one condo community we had seriously considered buying.. in the sales contract, it stated that we had to contribute an additional and nonrefundable $700 into their HOA reserves...on top of the $225/mo HOA we'd have to pay. and this was for a condo that was 400k! </p>
 
<p>When you purchase a home with HOA, you must read the HOA docs and look for the financial strength, reserves, any outstanding lawsuits, any strange spending, and everything else. And CC&R's for restrictions such as parking, machinary, noises, ....</p>

<p>Personally I like to purchase homes in the HOA and Mello-Roos district. They tend to hold values better. You do have to evaluate though. This is where you can get help from your RE agent.</p>

<p>Mono, we RE agents, have to disclose everything and more disclosures; otherwise, you can ask the RE broker/agent to buy back your purchase if we misrepresented you. I bet you did not know this.</p>
 
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