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)

 Legacy takedown

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)

31 thoughts on “Centex Pulling Out of Tustin Legacy

  1. OptimusPrime

    I am not surprised at all they pulled out.

    I just get a feeling that plot will be empty for the next decade.

  2. Chuck Ponzi

    Pay 900K to live under the flight path of SNA?

    No thanks.

    You gotta be out your mind.

    Chuck Ponzi

  3. sunsetbeachguy


    Nice smackdown of Kenny Boy from OCR’s blog.

    His efforts at an argument are disingenuous at best.

    Do you think this will be the next Coto De Caza, BK during a housing bust story?

  4. Sparta

    Where there is smoke, there’s fire
    For Centex to hit eject speaks volumes about the future of this project

  5. awgee

    sunsetbeachguy – Can you provide a link or a title of the article or whatever? I would like to read whatever it is you are refering to. Thanks in advance. Did developers or somebody building in Coto go bankrupt during the last re downturn?

  6. socalhousingbubble

    Chuck, I’m not going to say that Tustin Legacy is scenic by any measure, but the SNA jet landing path is all on the other side of Red Hill. When the Santa Ana winds blow and they takeoff eastbound, this area could be in the noise zone, but that’s relatively infrequently.


  7. gepetoh

    “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.”

    Orange County is definitely not immune. My wife and I went to Columbus Square and looked at a 3269 sf model, going for $855K. An ideal layout for us, standard mello roos, $110 HOA. Then we went to Amerige Heights in Fullerton, and looked at a 4-y.o., 3200 sf house, going for $1.02M. Same mello roos, $100 HOA, a smattering of upgrades, and similar sized yard. That is $262/sf vs. $319/sf. The $319 sounds slightly lower than a year ago. $262 sounds a LOT lower than a year ago. This is in the nicer neighborhoods in the county, and you can practically hear the prices deflating. Immune my arse.

  8. Chuck Ponzi

    Gotta disagree with you there buddy.

    I work in that area. I drive through every day. I know the area like the back of my hand.

    I even considered a rental in the area (across the street in the new aviation developments).

    Sorry to burst your bubble, but this is directly below SNAs flight path. All day long, every day.

    Good thing there is a moratorium (for now) for flights after 11:00 (I think), or noone there would get any sleep.

    IT IS loud. Anyone who tells you otherwise is trying to sell you a home in the area.


    PS. I still think they should build an international airport to rival LAX down south in Camp Pendleton. The US government has a few hundred square miles of prime undeveloped land that could be used for a new transportation infrastructure… kinda like BWI, keeping it outside of the main cities. More trains would be nice too.

  9. wondering

    First time to post but appreciate your blog. I have an aquaintance who works for California Pacific Homes (part of Irvine Co.) who maintains that all is rosy there. They are moving forward to continue hiring and building homes in OC. I read the other builders around are feeling pain. Can he be telling the truth?

  10. socalhousingbubble

    Chuck, I agree another international airport in the area would be welcomed. Too bad (for travelers) that El Toro didn’t survive. Where in Pendleton do they have the geography to support such another airport. There aren’t any flat areas I know of outside of the current airstrip along the river?

    To close on SNA, I work between the base and the approach flightpath. There is noise, I’m just saying factually, the base is not actually under the 19R approach path at any point.

    You can check Google maps and see that the closest the path gets is about 1km away at Dyer and the 55. The path doesn’t cross Red Hill (the closest border of the base) until MacArthur.


  11. socalhousingbubble


    It is just one data point, but Cal-Pac had significant price reductions out at Portola Springs, and sales are still very slow. They may be hiring but if your acquaintance is actually describing things as “rosy,” I’d be skeptical.

    They could be better off currently than for other homebuilders, though.


  12. Darin

    LOL, in the article there’s a picture. The picture is of “Friday get togethers were they are singing.” There’s a woman in the background looking around with her hands in her pockets. I wonder what she’s thinking…

    I’m thinking that peddle to the metal during rising times is a great idea and an equally bad idea when the market drops out from underneath you.

  13. graphrix

    Thanks sunsetbeachguy on my comments towards Ken. I think you would be impressed with some of the other comments that Lansner hasn’t posted. It kills me because I try to keep the name calling to a minimum and stick to facts but the blogprincess Jon allows Ken to insult people. I will email him but even if I get a response it will be “I don’t know”. Here is one point that I tried to post for our friend Ken from Centex’s 10-K: “Land impairments and write-offs of pre-acquisition costs in our Southern California and Las Vegas markets totaled $215.9 million. In addition, we recorded $45.1 million in our share of joint ventures’ impairments and our decision to exit one joint venture in the Southern California Coastal market in fiscal year 2007.” Socal and Vegas accounted for 33% of their write offs and impairments not including JVs. Plus the additional write off for the cost to exit their JV in socal was 36% of all the JV write offs.

    As for this being the next BK like Coto? I do not know. What I know is Shea has taken over the entire project and as of right now they are the builder who will proceed with it. Shea is a private company so you can’t tell if they are having cashflow problems. I do know they are having a really difficult time selling their senior citizen projects called Trilogy. I think they knew Centex’s position and probably got a helluva deal.

  14. Bkshopr

    The flight path is between 55 and Redhill before the last 3 mile approaching SNA. The last 3 miles of the path is directly over Redhill and it is sometime directly over the Western Edge of Tustin Legacy to directly align with the airport runway. Noise is heard a mile from both sides of the path and vibration is really severe felt at the business parks directly below the path. In any event it is not a good idea to live near the path of aviation due to fuel and potential crash.

    Most plane crash into residential results in high fatality. August 1986 the plane crashed into the Cerrito neighborhood resulted in some fatality. Luckily on that day many residents were at work.

    3,270sf at $855 may seems to be a good deal. But if you really study it may be just the builder bulking up footage to create an illusion that you will be getting a good deal. The most expensive expenditure for the builder is the Kitchen and baths. The extra bedrooms are really cheap to build with some extra lumber and cheap drywall.

    Traditionally the value ratio for the smallest home is the most expensive because there just is not enough footage to amortize the expense of the kitchen and baths. A small home 1200 sf with 2-1/2 bath cost about $160 per sq.ft. to build while a 3000 sf with 3 baths cost $105 per sq. ft. to build. The garage size is the same for both homes.

    California Pacific Homes in the past has done very well. The last recession in 1990 was a testament of this company’s success in its creative product positioning. West park to be specific was the community active leading into the last recession. It introduced entry level affordable projects for many first time buyers. These homes for many were kept as investment properties as the buyers advanced into the next homes. The compact size of these homes 1000sf-1490 sf align very well for family rental when IAC’s apartments are not suited for family with children.

    This is a company that in the last several years have introduced the concept of a detached condo at incredible land density. The lowest price for a detached homes is always attractive for any home buyer. This builder tends to recycle projects so 5 or 6 identical projects scattered round Irvine is common. Its current Decada started in West Irvine around 1999 while Cortile is an offspring from Aldea in Oakcreek. The prices have double for both bloodlines.

    Vientos and Bowen Court in my mind are not the pedigree of the detached condo bloodline. Both the Plan one and two are the bastards. There have been several alternative diagrams illustrating the proposed modifications to these plans while the plan 2 model is constantly in construction surgery for an extreme makeover. The constant patching of the plans in my mind is to amend a flaw. Serious work is needed for California Pacific to bring this “threequel” to be a big box office hit.

  15. graphrix

    SCHB – The was an brief article in the OC Register a few weeks back that quoted Richard Douglas the SoCal division president for Centex. I cannot find it for the life of me online. There is a slight chance I kept it and I will post it or scan it if I find it.

    One of the quotes from Richard was something like we feel that we can’t continue at the pace that Shea can therefore we feel it is best for Shea proceed further.

  16. socalhousingbubble


    Let us know if it turns up, and also share the “Smackdown” link you were discussing above.


  17. sunsetbeachguy

    I figured as much and have been heavily edited at OCR myself.

    Remember fair and balanced even if all of the facts and arguments aren’t.

    Keep up the good work and lay the smackdown on the perma-bulls (aka pigs).

  18. sunsetbeachguy

    Actually, your post is timely.

    I responded to Ken today pointing out his tactics and providing links to piggington, bubblebuster and voice of san diego as a fact based response. They didn’t get posted.

    If it is inflammatory with no logic it gets posted at OCR.

    I guess they have to keep the debate going with the dead enders or everybody is a troll over there.

  19. Joe

    I was just driving down Redhill 15 minutes ago….going from Tustin to Irvine. VoC was entirely on my left. The airplanes approaching John Wayne were well to my right. I could hear the plane, but it was definitely well to the right/northwest.

  20. sunsetbeachguy

    I am too lazy to look up the smackdown link.

    It was on Jon Lansner’s blog within the last week with about 40 comments underneath it. The interaction was toward the end of the thread.

    Kenny Boy and Graphrix mixed it up but it seems Lansner tied Graphrix’s hands behind his back.

    For people with any amount of intellectual curiosity and any amount of business experience letting Graphrix at Kenny Boy would have been like a fighter from UFC beating up on a schoolyard bully.

  21. graphrix

    CalPac is unique since it is backed by Bren dollars and there are many Bren dollars. From a historical perspective they resisted the longest in the 90s before they had layoffs. Plus they may be trying to pick up some of the talent that the other builders had to let go.

  22. graphrix


    It starts about half way down in the comments section.

    I started to paste some of my comments in Word so if I became really irritated I would just keep posting them over and over again. Unfortunately I had a really good one last night where I listed about five builders and their losses in CA and Centex’s loss from walking away from Tustin Legacy.

    Here is the follow up comment I had for Ken before Freedom Press went Hugo Chavez on me:

    Ken – Go ahead and call me one for sensationalism but for one who does not read beyond this blog or better yet the print edition of the Register I find your general knowledge seriously lacking. If you did read the print edition of the Register you would have read Richard Douglas’s comments on why as the division president of the SoCal Division of Centex walked away from Tustin Legacy. Trust me if the article existed online I would have a link to it. You can find the phone number for the Socal division and ask Richard yourself.

    Do you know how builders purchase land? What is a land option contract? Did I say they were giving away land? Who benefits when a builder walks away from a land option contract? Please tell me what it means when a builder says they took a land impairment? When I say a 10-Q and 10-K do you know what I mean? Why is it in those 10-Q and Ks did homebuilders lose money in California? Why did DR Horton only lose money in one market and that market was California? Why did KHov and Beazer’s debt get downgraded to junk by moodys?

    I do not need to prove my facts as they are plain as day in any financial statement from any of the homebuilders. How about this try doing some research on your own and you may be surprised what you may find. All you have to do is go to the builder’s website and find where you click on investor relations. What is really cool is you can listen to a webcast of the conference calls they have. I suggest you listen since the CEOs of homebuilders probably know more about the market than you or I do.

    I am still waiting to hear from Lansner on this problem.

  23. graphrix

    No I am not new to OC or the internet but if you are a subscriber to the paper version you can get the e-paper version for free. Or if you want you can pay for e-paper version seperately and you can search the archives back to 2002 for free.

    So here is the May 1st, 2007 article from the OC Register’s your money section.

    Centex Homes is withdrawing from Tustin Legacy project

    Centex Homes is withdrawing from a partnership that is developing residential and commercial projects at the former Tustin Marine base, a company official said Monday.
    Richard Douglass, president of Centex’s Southern California Coastal Division, said his company has decided to withdraw from the project after a “strategic review” of all company operations.
    The Legacy Park Partners (formerly called Tustin Legacy Community Partners) have plans to build 2,100 homes and more than 6 million square feet of commercial and office projects. Centex has a one-half interest, with the other half split between Shea Homes in Walnut and Aliso Viejo-based Shea Properties.
    Douglass declined to give details of his company’s reasons for withdrawing or whether it’s losing money by walking away from the development. He said Centex has invested a substantial amount in the project but declined to say how much.
    But the decision had nothing to do with profitability, he said.
    “On an operational level, to aggressively pursue it would be better in the hands of the two Shea groups,” Douglass said. “It’s more a reflection of Shea’s and (Tustin’s) desire to move aggressively forward.”
    In all, about 4,200 homes are being built at the former Tustin base.
    William Lyon Homes, Lennar Corp. and John Laing Homes are developing other portions of the base.

  24. NickStone

    That whole development makes me wonder how much the government really knew about the upcoming bursting of the real estate bubble. I am sure they just got lucky… but you have to admit… they timed the sale of El Toro PERRRRFECTLY!!!!!!! Right at the top of the price curve.

    Makes you wonder what they knew.

  25. Aerogell

    Good research indeed.

    I’d have done the same research as you did, I’m used to this type of research which is common in stock investing forums.


  26. socalhousingbubble


    Thanks very much. That’s good reference of which I wasn’t aware.

    Get’s you wondering what the “conditions in the report” are for the withdrawl.


  27. graphrix

    Nice find Aerogell! Now what is wierd is Centex technically made the decision to pull out of the project before their fiscal year end of March and mentioned it in their 10-K. Also that link mentions that more info is in the report. Any chance there is a link to that?

  28. Dale Stark

    I would have to strongly disagree with your SNA statement. I live at Columbus Square and when you are outside or inside with the windows open there is NO noise from the flight path.
    If anything there is a small amount of noise from the train that runs down Edinger, but that is minor at best……
    I don’t think you know what you are talking about.

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