Cash Buyers Still Driving OC Residential

NEWPORT BEACH, CA—With job growth, some credit easing and more-traditional buyers returning to the single-family homebuying arena, OC residential is a really hot market, Sabal Financial Group L.P.'s head of production for its homebuilder finance division Darren Fancher tells GlobeSt.com. The division recently closed a $75.5-million loan on behalf of Newport Beach-based Baldwin & Sons LLC to finance the development of 81 new for-sale residences in Lake Forest, CA, the first phase of the builder's Portola Northwest project. We spoke exclusively with Fancher about the single-family residential development market in Orange County and how the lending community views it.

GlobeSt.com: Describe the market for single-family residential development in Orange County.

Fancher: Orange County is a really hot market. South Orange County and the middle of the county remain really popular, driven by foreign and domestic cash buyers who want to be in the better Orange County school districts. There is some credit easing that is allowing that to happen, as well as a lot of better jobs, which is allowing more traditional buyers to get back into the market. They want to be close to the coast—and Lake Forest is about a 25-minute drive—but still in the heart of Orange County, with access to a lot of amenities, the beaches, neighborhoods and the kinds of things that drive people here.

GlobeSt.com: How does the single-family residential market compare to the apartment market in that region?

Fancher: Apartments are really hot right now. There's a lot of construction going on and an incredible demand for housing here in general. I predict that both the multifamily and for-sale sectors will continue to do very well. There's a huge push to build multifamily at the coast, and there's no problem renting, from what I'm hearing. But that renter isn't the buyer of our million-dollar homes.

GlobeSt.com: What is the lending community's view of this market as opposed to apartments?

Fancher: There's been a great deal more access to capital than in the past. We see a lot of banks getting into the space, whereas they avoided it for six or seven years. Everyone is cautious to make sure they don't underwrite bills with high escalating sales prices. In general, banks and private lenders like us are cautiously optimistic or bullish—on infill and other projects. Most of us are avoiding altogether going further out and are being conservative about investments. A lot of the banks offer recourse, and we offer non-recourse; builders like that. Banks with full recourse programs push on things we might pass on. People still like the non-recourse aspect to our program.

GlobeSt.com: What regions of Orange County are best-suited for this type of development?

Fancher: We're kind of out of land here, except for Great Park and a few other master plans. But as you lose those opportunities to build square footage, there's higher densification. There are a lot more condos going up the closer you get to the water; farther east you can get bigger, 6,500-square-foot lots, but there's not a lot of land left to do that coastally. Smaller sites and smaller subdivision development is the alternative as you get closer to the coast. You're getting less land for your money, but you're closer to the amenities.

A lot of us are bullish on infill opportunities and smaller deals in the right location. These projects are going extraordinarily well now. We're paying attention to jobs and demand and the costs of projects themselves, making sure that builders are keeping an eye on the budget.