Irvine Housing Blog

Insulting Asking Prices

The Villas of Shady Canyon - Mark McGwire’s Old Place - UPDATE #1

Originally posted January 9, 2007

Address: 3 Redbird, Irvine, CA 92603 (Shady Canyon)
Plan: 4240 sq ft - 4bd/4 and 2 .5ba
MLS: U6601263 DOM: 238
Sale History: 3/8/2006: $3,950,000
4/15/2002?: $1,842,500 (From Zillow)
Price Reduced: 06/28/06 -- $4,195,000 to $4,050,000
Price Reduced: 08/23/06 -- $4,050,000 to $3,950,000
Price Reduced: 10/13/06 -- $3,950,000 to $3,850,000
Current Price: $3,850,000

An astute reader emailed me about this flip last week (Thank you!). Here we have a Plan 2 in The Villas of Shady Canyon tract built by Taylor Woodrow. This is one of the few (3?) semi custom tracts in Shady Canyon. The rest of the homes are all custom. It's a beautiful home and was originally owned by baseball power hitter Mark McGwire.

It appears that a flipper purchased this home from McGwire for $3,950,000 on 3/8/2006 (good timing for Mark but not for our flipper). It was listed back on the market about 2 months later for $4,195,000 with John McMonigle (recent article). At that price, the flipper would barely break even after selling costs.

Over the course of 2006, the flipper lowered the price three times. These are pretty significant dollar reductions. Also, from what I can tell off the MLS listing, this property is vacant and my guess is that the flipper never moved in. I also see a loan for about $1,500,000. The HOA dues are about $560/month.

Excluding carrying and opportunity costs (but assuming 6% in selling costs), if sold at the currenty asking price, this seller is facing a loss of over $330,000!

Private remarks also state: "CLIENT IS OFFERING $20,000 TO ANY BROKER (PARTICIPATING IN MLS) WHO BRINGS IN A BUYER THAT GOES INTO CONTRACT AND CLOSES ESCROW ON PROPERTY." I suppose that is on TOP of the 2.5% the broker will receive for bringing in a client.

This is definitely the biggest $ flop we've seen in Irvine. If anyone has more insight into this (or has information contrary to what I've found), please post.

Anyone care to guess if the house will sell quicker if Mark McGwire is inducted into the Hall of Fame today?

UPDATE #1 - June 8, 2007

Thanks to a tip from a reader, I've come to find out that the price on this home has been reduced again:

MLS: U6601263
Price Reduced: 05/22/07 -- $3,850,000 to $3,695,000

Excluding carrying and opportunity costs (but assuming 6% in selling costs), if sold at the currenty asking price, this seller is facing a loss of over $476,000!

Not an exact comparison.. But there is a Plan 1 on the same street (19 Redbird MLS #: U7000758) asking $3,250,000. It's been on the market for 110 days. I don't think anything has sold in Shady Canyon in the last 6 months. Anyone have more info?

More Jasmine Dew Drops in Quail Hill - UPDATE #1

Originally posted April 26, 2007

Address: 260 Dewdrop, Irvine, CA 92603 (Quail Hill)
Plan: 830 sq ft - 1/1
MLS: U7000571 DOM: 84
Sale History: 11/21/2005: $445,000
10/23/2003: $251,000
Price Reduced: 03/22/07 -- $445,000 to $434,900
Current Price: $434,900

Many thanks to the reader who tipped us off to this property! Here we've got a Plan 1 in the Jasmine tract in Quail Hill. It was most recently purchased for $445,000 with 100% down (both loans from Greenpoint) on 11/21/2005. $445k for a 1bd? Yikes!

Fast forward about 14 months and the property is back on the market. Originally listed at $445k (hey, it should be worth at least what I bought it for right?), it was reduced a little after 1.5 months. Although this property does not qualify for a Knife Catcher award, the owner (or will it be the lender in this case?) is definitely bleeding money every month as the property is listed as VACANT.

The property taxes for the 2005 Roll Year were delinquent. Now, the website is showing them as paid on 3/26/2007. Also, the first installment for the 2006 Roll Year is also Delinquent. About $7k in property taxes (1st and 2nd installments) are due by 7/2/2007. It looks like they are trying but they probably got in over their heads.

The original owner (the buyer in 2003) made quite a nice profit in 2 years. From what I can see on title, it looks like they may have put up to $80k down on that purchase. So the original owner bought a $250k property, may have put $80k of their own money down, owned the property for about 2 years, got lucky with the timing and price of the sale, and made around $170k. Contrast that with the current owner who bought a $445k property, put $0 down, owned the property for 1.5 years, got unlucky with the timing and price, and will lose at least $36k (assuming 6% in selling costs)!

UPDATE #1 - June 8, 2007

Here's a quick update. The price was reduced again a few days after the initial post.

MLS: U7000571
Price Reduced: 04/30/07 -- $434,900 to $428,900

The loss will be about $42k if we assume 6% in selling costs. This one has gotta be going back to the bank.

I Want My HOA

LOL, OMG, WTF?

Music to My Ears

Centex Pulling Out of Tustin Legacy

The next phase of Tustin Legacy, including the large eastern corner of the Tustin Marine Corps Air Station at Jamboree and Edinger (pictured above), is undergoing a potentially significant shakeup. Centex is negotiating to pull out of Tustin Legacy Community Partners, LLC, the Master Developer partnership with Shea Homes for this portion of the base's development. (Other areas were led by Lyon, Lennar, and Laing)

The OC Register reported:

At a special meeting on May 7, the City Council voted to approve restructuring the Tustin Legacy Community Partners development agreement to permit Centex Homes, a publicly traded company, to withdraw from the partnership.

Last month, Centex Homes announced its intention to withdraw from the project. The company recently stated that the withdrawal was a result of a review of its portfolio, including the financial resources necessary to remain in the partnership.

The Orange County Business Journal added:

The departure of Dallas-based Centex would make the partnership an all-local affair. Two units of Walnut-based J.F. Shea Co. as well as the city of Tustin are the other partners.

Legacy Park calls for 2,100 homes and 6.7 million square feet of offices, restaurants, shops and hotels in the next six to eight years. The project broke ground late last year.

This is probably a good example of how homebuilders are forced to respond to substantial financial pressure and "hunkering down" for this reversal in the market. It would validate news reports of homebuilders, in general, reducing their land holdings, and in many cases paying a penalty to forfeit these positions. Centex's latest 10-K filing with the SEC, for the period ending March 31st, acknowledges rather plainly the nature of these pressures  (they are not referring specifically to Tustin Legacy):

"The risk of owning developed and undeveloped land can be substantial for homebuilders. The market value of undeveloped land, buildable lots and housing inventories can fluctuate significantly as a result of changing economic and market conditions, such as the adverse conditions we are currently experiencing. During the year ended March 31, 2007, we also determined it was probable we would not pursue development and construction in certain areas where we had made land option deposits, which resulted in significant write-offs of land option deposits and pre-acquisition costs. In addition, during the year ended March 31, 2007, we recorded land valuation adjustments, or impairments, to land under development primarily due to challenging market conditions and, to a lesser extent, cost overruns in land development budgets. These write-offs and impairments adversely affected our operating earnings and operating margins during the year ended March 31, 2007. If market conditions deteriorate further in future periods, we may decide not to pursue development and construction in additional areas, and the value of existing land holdings may continue to decline, which would lead to further write-offs of option deposits and pre-acquisition costs and further land impairments.""

It is not known how much Centex has invested so far in this relationship, which appears to have been solidified about one year ago, according to City of Tustin documents. This slide suggests that there are not direct land purchase costs at this (phase 1) stage in the project.

It does appear that the costs to make the infrastructure improvements (which are in the critical path to actually building on the land) were being borne by the partnership, so presumably they'd be on the hook for a portion of those. There have already been months of earthmoving and grading going on, as those who drive across Edinger regularly have seen.  There are mixed reports on whether this is a positive or defensive business move on the part of Centex. No evidence of an official announcement on the part of Centex, Shea, or the City of Tustin has been found yet.

What does it mean for the marketplace?

This isn't clear. It is unlikely that Shea would become the exclusive builder on the property, given the sheer size. The Master Developer role means they can sell off sub-parcels to other interested homebuilders and it is reasonable to assume they would, to help spread risk. So to Orange County home shoppers, it may just mean a different mix of homes than otherwise would have been. But when reshuffles like this take place, I'd venture to guess it is a sign of significant stress in our marketplace, and despite suggestions to the contrary, Orange County isn't immune.  The follow up questions for us to consider are:

1. Has the marketplace yet seen the worst of this stress, or is more coming?
2. Because of the lag from consumating the development deal to selling homes, are the land values agreed upon (and now the responsibility of Shea) still supported by the marketplace?
3. Is this more of an opportuntiy or risk for Shea?

Referenced links:

OC Register Briefing  (about halfway down)

OCBJ Article (thanks to Zovall for research assistance)

Centex 10-K  pdf (pages 12 & 13)