Toll Buys Half of a 2,379-Home California Subdivision

Toll Brothers Inc., the largest U.S. luxury-home builder, is buying half of a Southern California subdivision approved for as many as 2,379 houses as demand for new single-family properties begins to recover.

Toll will become a joint-venture partner with closely held builder Shea Homes to develop the 387-acre (157-hectare) Shea Baker Ranch in Lake Forest, according to Douglas Yearley Jr., chief executive officer of the Horsham, Pennsylvania-based company.

“You have what we think is a spectacular opportunity,” Yearley said in a telephone interview today. The project, about 12 miles (19 kilometers) from Orange County’s coast, has been approved by the city council, he said.

Construction starts and orders for new U.S. houses, after setting a record low in 2011, have picked up this year as the job market improved and record-low mortgage rates made housing more affordable. New homes sold at an annual pace of 343,000 last month, up 9.9 percent from a year earlier, the Commerce Department said May 23. Builders broke ground on single-family homes at an annual rate of 492,000 in April, a 19 percent jump.

Baker Ranch

The seller of the California land is Baker Ranch Properties, a firm controlled by the family who once owned much of the area that now comprises the city of Lake Forest, about 45 miles southeast of Los Angeles. Larry Tucker, co-managing member of Baker Ranch Properties, declined to discuss the transaction.

Yearley declined to disclose the price of the sale, which he expects to close in June or July.

“It’s currently in escrow,” Bob Yoder, Southern California president for Shea Homes, based in Walnut, California, said in a telephone interview yesterday. “We’re in discussions how we’d best allocate the lots.”

Model homes are expected to open by January 2014, and the first residences should be finished late that year, Yearley said. About 80 percent of the residences will be single-family homes, with the others multifamily, he said.

‘Pretty Big Deals’

Toll spent $124 million on land in the quarter ended April 30, Yearley said during a May 23 earnings call, adding that he expected to announce “some pretty big deals” in the coming months.

“This was the biggest,” Yearley said in the telephone interview.

The company ended the quarter with 39,500 lots owned or optioned in 20 states.

“We are now seeing more good deals at more good prices on average than we have for a long time,” Toll Chairman Robert Toll said about land purchases during the call. “We’re opportunistic. If a good deal comes, we go. If a good deal doesn’t come, then we sit.”

The average price of a Toll Brothers home contracted for sale in the most recent quarter was $585,000. Yearley declined to say how much its homes will cost in the new community.

New homes in Orange County sold for a median price of $625,500 in April, up almost 17 percent from a year earlier, according to San Diego-based research company DataQuick. The number of new homes sold in the county fell 26 percent.

Pent-Up Demand

“There’s not much inventory now in Orange County,” Richard Gollis, principal of the Concord Group, a homebuilding and development consulting firm in Newport Beach, California, said in a telephone interview. “There seems to be pent-up demand in good communities.”

Shea Baker Ranch, which received preliminary planning approval from the Lake Forest City Council on May 15, is within one mile of Great Park Neighborhoods, a master-planned community for as many as 5,000 homes being developed by FivePoint Communities Inc. The first Great Park homes are scheduled to go on sale next year. Shea Baker Ranch also is less than two miles from Irvine Co.’s Woodbury and Portola Springs communities.

“Great location,” John Burns, chairman of John Burns Real Estate Consulting Inc. in Irvine, California, said in an e-mail. “It’s a big deal.”

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