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OC Business Journal: $34 million for Tustin land could be CalAtlantic’s last deal as stand-alone

by Mark Mueller

Irvine-based CalAtlantic Group Inc.’ s last big land deal as a stand-alone company could turn out to be a 14.5-acre site it just bought a few miles from its headquarters at the Tustin Legacy development.Rendering: Levity development to include more affordable homes.

Long the largest homebuilder based in Orange County, with a market value of about $6 billion, it completed a deal last week to buy land for the next phase of home development at the city’s nearly 1,500-acre former marine helicopter base.

CalAtlantic is paying the city $34.2 million for the site, city filings show, or about $156,000 per home and nearly $2.3 million an acre. The Levity project will hold 218 homes.

About $1.3 million of the purchase price will be used to fund backbone infrastructure in the vicinity.

Terms of the deal had been under negotiation for several months, after the city chose CalAtlantic to head the project.

CalAtlantic also led the last phase of home development at Tustin Legacy, the 375-home Greenwood project, which is wrapping up between Jamboree and Tustin Ranch roads. It opened in mid-2015. The company paid a reported $56 million, or roughly $150,000 per home lot, for the 78 acres and kicked in nearly another $17 million for infrastructure improvements at Tustin Legacy as part of the deal, according to city documents.

“CalAtlantic has proven to be a solid partner for us,” Tustin Mayor Al Murray said in a statement following the latest deal’s completion.

While Greenwood’s product was larger single-family homes, several for more than $1 million, Levity will include smaller units that “will be offered at a more attainable price point for young couples, new families and empty nesters,” Murray said.

Homes will include three-story townhomes, stacked flats, and single-family homes, ranging from 1,371 square feet to 2,688 square feet. Many homes will feature rooftop decks and balconies, and the project’s design will emphasize “great natural lighting and minimize the use of stucco material,” according to a city statement.

Groundwork is scheduled to start midyear and models to open next year. The development is next to the Greenwood project.

Pricing hasn’t been announced for the new homes.

The city will get an extra cut of profits at Levity if the builder meets certain sales goals. In addition to the base $34.2 million purchase price, it will receive 50% profit participation in the event CalAtlantic’s net project revenue exceeds 8.5%, filings show.

CalAtlantic’s average gross profit was about 21% at year-end, according to its latest earnings report.

City representatives said last week that Tustin has made similar profit-participation deals with builders at Tustin Legacy in prior development phases.

Lennar Imminent

Homes at Levity will be built under the CalAtlantic name or that of Standard Pacific, the local company’s name before its 2015 merger with Ryland Homes of Westlake Village, a $5.2 billion deal.

It’s anticipated that an even larger transaction will close this month.

Miami-based Lennar Corp. is close to completing its blockbuster purchase of CalAtlantic, a deal that will create the country’s largest homebuilder, with about $17 billion in combined annual sales.

The stock, debt and cash deal, announced in October, was valued then at about $9.3 billion. The acquisition could close as soon as this week, according to national news reports.

Tustin’s recent deal with CalAtlantic “takes into account this pending merger and provisions have been crafted accordingly to ensure financial capability and expertise will be available to complete the project,” city documents say.

Lennar’s stock, despite the recent sell-off hitting Wall Street in general and homebuilders in particular, is up about 15% since the acquisition was announced, giving it a market value of nearly $14 billion.

CalAtlantic’s stock was up about 35% over the same period.

The impending CalAtlantic acquisition and the recent Tustin land deal will give Lennar another notable land site in OC. It’s also the most active builder at Great Park Neighborhoods, the region’s other big former military base, which is being converted to residential uses.

Lennar sold 327 homes in OC last year, while CalAtlantic sold 278 here, according to Hanley Wood market data.

CalAtlantic reported employing about 230 people in OC last year. State employment filings show it cut 15 positions this month in preparation for the sale to Lennar.

Lennar, which runs much of its day-to-day operations in Aliso Viejo but will move its West Coast hub to Irvine’s new Five Point Gateway office complex this year, is estimated to employ about 160 people in the area. The company hasn’t announced cuts to local operations as a result of the acquisition.

The Business Journal reported in December that Lennar Regional President Jeff Roos had been tapped to run much of the combined company’s Western U.S. homebuilding operations, including OC’s, once the acquisition of CalAtlantic is complete.