RealShare Orange County development panel

COSTA MESA, CA—From infill redevelopment to dealing with brownfields, Orange County developers are finding ways to get projects done in a regulation-hampered market where land is scarce, said panelists at RealShare Orange County Thursday. During the panel session “Orange County Development: Getting Ahead by Building an Active Pipeline,” key players in the development field discussed the state of the market, what can be expected in the future and how they deliver despite the challenges.

Looking for sites that are not being used, where mixed-use projects and housing would thrive, is part of Trumark Homes' strategy, said Eric Nelson, VP of community development. “Land owners are selling to guys like us because they can extract the value in that land.”

Kurt Strasmann, senior managing director of CBRE, said it's so hard to find land, so developers must redevelop—particularly with a 1.6% vacancy in industrial space in Orange County. “That's 0% availability. Orange County is one of the most sought-after markets in the country.” Another hindrance to industrial development in this market, he added, is the fact that office rental growth is escalating, and that serves as incentive for developers to build office over industrial.

Acquiring development financing is another challenge since many lenders have pulled back on construction financing. Moderator Chuck Packard, president and CFO of Pacific International Capital, asked the panelists how the scarcity of construction loans is affecting the market, and Auriel Street, business development with Streit Lending, said, “It's good for us because if borrowers can't get a bank loan, they come to us.” But, he noted, it's also good not to be overbuilding due to a lot of cheap capital. “A higher cost of capital raises risk.” Also, he said, there's lots of single-family residential construction occurring in the coastal cities of Orange County because this is highly profitable real estate. “Developers can add 1,000 square feet and add $1 million to their profit.”

Jenny Redlin, a principal with Partner Engineering and Science Inc., said, “We're supporting all those construction loans. The pullback in construction loans is constricting, to some degree, but we are still hiring in that area.”

Shifting to discussing regulations, Nelson said government control has resulted in $90 billion in lost construction revenue. “There's job security for people like, who are fighting to get projects through,” he added, but the situation is still not ideal. “There's no silver bullet to fix it. Overregulation is hampering growth in California.”

Strasmann said California regulation is about as challenging as it gets, but “somehow we get through it. Construction costs are up, land is impossible to find, loans are hard to get and regulations are high.”

Redlin pointed out that the labor shortage is also contributing to the high cost of development. Delays caused by all of the issues Strasmann mentioned can result in broken budgets for labor like plumbing. Streit agreed, adding that huge cost overruns make things difficult for smaller developers especially.

Packard turned the discussion to working with contaminated land in the form of brownfield developments and whether the panelists shy away from them. Redlin said, “Today's investors are savvier than they were.” They want to get things done, and “everyone is getting more comfortable with brownfield development.” Streit, however, said his firm tends to avoid properties with contamination.

Next, the panelists discussed innovative technologies, and Strasmann said this has been huge on the office side with creative office, progressive space and outdoor amenities. He spoke of “Uberzons,” where every project is designed for Uber drop-off and pick-up and e-commerce delivery, as well as the ever-shrinking parking garage. “There's probably a lot of no parking going on in new construction.”

Redlin said her firm has been talking for a while about how driverless cars will change the face of real estate. “We are using drones to look at roofs,” she added, pointing out that using technology means that remediation work no longer means a property needs to be torn down in order to be renovated—it can remain operational while this work is being done.

Nelson said his firm uses technology to manage consultants and jobs, to monitor work like pick-ups and whether jobs get done right. He said most of the technology being used by his company is in the pre-development and management-of-development phases.

Strasmann said technology could take the industrial model literally to new heights, saying he recently read that Amazon and Walmart are discussing using floating blimps for warehousing, with drones attached, to solve last-mile delivery problems.

Moving on to construction risk management, Redlin said it's smart to pay contractors at the job site so they stay with the project, especially with the labor shortage. Strasmann said, “You need to have guts to go ahead with projects,” and he noted that mistakes can hurt because underwriting is so thin.

Instant Insights /

Extracting Value From Land Keeps Development Afloat

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