December 03, 2007
SunCal Branches Out with Multifamily and Retail Divisions
Developer plans to own and manage up to 40,000 apartments within 10 years
By JULIE NAKASHIMA
CREJ Staff Writer
Joining the do-it-yourself trend, Irvine-based SunCal Cos., a Western U.S. developer known primarily for master-planned communities, is branching out into apartment and retail/commercial development.
The company recently installed Stephen Mensinger and Jim Righeimer as presidents of its new multifamily and commercial divisions, respectively.
Mensinger most recently was president of Arnel Management Co., the apartment division of Costa Mesa-based Arnel & Affiliates, a real estate company owned by former U.S. Ambassador to Spain George Argyros. He will direct the development of new apartment product within SunCal's existing land inventory, and lead the acquisition of existing apartment communities throughout its target markets.
Mensinger described it as an evolutionary step that will add value to the company's brand. SunCal is a master developer of large single-family communities such as Amerige Heights in Fullerton, Lincoln Crossing near Sacramento and Tesoro del Valle in the Santa Clarita Valley. But it typically has sold off the multifamily and retail components to other developers, he noted.
"This is a natural progression of vertically integrating all the real estate disciplines within one company," Mensinger said. "Instead of selling the pads off to an apartment developer, we're going to develop them ourselves."
The company anticipates owning and managing 20,000 to 40,000 units within the next 10 years, he said. Within its existing land inventory, SunCal has 2,000 units that are either entitled or can be entitled, which the company plans to develop over the next five years.
"In some cases we'll re-entitle land, where it's possible and where it makes financial sense," he said.
SunCal has 70 communities containing 250,000 residential units and 10 million square feet of commercial space in various stages of development.
The commercial division is still in its formative stages, according to SunCal spokesman Joe Aguirre. Righeimer was named to head the new division from within the company.
According to Mensinger, SunCal developments in which the multifamily division will be involved include the 57,000-acre Atrisco Land Grant site, located west of Albuquerque in New Mexico. SunCal and a member of the D.E. Shaw group acquired the property, currently being master planned, in December 2006.
SunCal also is developing 770 acres of the former Alameda Naval Air Station in Northern California, now called Alameda Point, to create a mixed-use waterfront community. The company entered into an exclusive negotiating agreement with the Alameda Reuse and Redevelopment Authority in July.
The apartments the company intends to build will be at the higher end of the market, as opposed to workforce. Mensinger said SunCal usually develops either premium or market-rate product, although its projects often include some affordable component.
"There isn't anything that's not workforce," he said. "It just depends on the income level."
He is not worried that the current housing downturn will hurt the apartment business, saying the rental market doesn't depend on the single-family market as much as it depends on job growth. Further, the apartment market has not been overbuilt to the extent the commercial and single-family markets were, Mensinger said.
"Job growth remains strong in most markets," he asserted. "Unemployment is at all-time lows. A lot of markets have an undersupply of rental product, especially in the premium segment of the market."
But as far as job growth is concerned, the outlook for Orange County and Southern California is somewhat mixed.
According to Jack Kyser, senior vice president and chief economist of the Los Angeles County Economic Development Corp., large job losses in the financial, insurance and construction sectors have contributed to a "very, very gloomy" picture for Orange County. The county's total nonfarm employment has been flat, he noted.
"This doesn't look like it's going to turn around very soon," Kyser said. "Orange County is probably in its own little job recession."
Los Angeles County's unemployment rate of 5.1 percent now outpaces the 4.7 percent national rate, he said, and Ventura County job growth is close to flat because of layoffs by Amgen Inc.
"Other areas like Riverside and San Bernardino look to be very robust, although I've got my fingers crossed," Kyser said.
The Riverside/San Bernardino area has suffered an abundance of notices of default and foreclosures, he said, but they're still seeing growth in manufacturing and international trade, as well as year-to-year growth in construction employment.
According to RealtyTrac, the Riverside-San Bernardino region posted the third highest foreclosure rate of any metropolitan area in the nation during the third quarter. The region also recorded the most foreclosures during the period, a total of 31,661 filings.
Meanwhile, the National Association of Home Builders, citing statistics from the U.S. Commerce Department, reported multifamily housing starts rose 44.4 percent to a seasonally adjusted annual rate of 345,000 units in October. However, NAHB Chief Economist David Seider said this "bounce-back," which followed a 35.9 percent decline in September, reflected typical month-to-month volatility.
Seider said the pattern of multifamily permits shows that the sector is gradually losing momentum. But at the same time, apartment starts were up by 5.8 percent in the West, according to NAHB.
As Mensinger noted, demand in each market differs.
"It's very difficult to broad-brush the apartment market," Mensinger said. "We think the fundamentals in Orange County are going to be strong for a long time. We think the Inland Empire will have challenges for the next six to nine months, but we have in the Inland Empire one of the strongest job-growth markets. We're long-viewed about the apartment business."