By Meghan Hall
Operating as a developer in the San Francisco Bay Area is no easy task, but Landsea Homes, who broke into the market in 2013, has already established itself as a player when it comes to single-family product in prime markets throughout the Bay Area. A U.S. subsidiary of Landsea Green Group, based in China, the developer has successfully designed and built a variety of single-family detached and attached homes and master planned communities throughout the region in Newark, Sunnyvale, Danville and beyond. And, while Landsea has had no issues capitalizing on the health of the regional market, a significant jump in home prices has slowed the pace of sales slightly, according to Landsea’s President for the company’s Northern California Division, Josh Santos.
“It’s interesting because we’re a cyclical business so people think, ‘here we go again,’ because if you look at the Bay Area over the past year and a half, we’ve had a significant price increase in some of the core markets,” explained Santos. “All of the sudden the folks that were looking to purchase from us are priced out; they were priced out of the primary locations they were considering, and so they are taking time to reassess. Affordability has been really pressed.”
Santos estimates that in some markets, like Silicon Valley, the pricing for single-family product had jumped nearly $200,000 by the end of 2018, a mixed result of the Bay Area’s powerhouse economy.
“It’s tough for families,” Santos acknowledged. “There are far more jobs that are being added to our very fortunate area, which is totally driven by tech. There’s just so much job growth and we are nowhere near to meeting that demand because so many people are moving into the area for solid, strong jobs.”
Developers are struggling to keep pace with single-family construction, and combined with a slight uptick in interest rates and large labor shortages, many buyers, said Santos, are forced to consider different Bay Area submarkets. Other are forced to re-evaluate whether or not to purchase at all.
“We can’t build [homes] fast enough,” said Santos. “Probably the hardest thing to do right now in the Bay Area as a business is build a home. However, if you look at the income of those we’re selling too, the buyer pool is really strong. That is one of the great fortunes of operating here.”
From Landsea’s perspective, it is seeing much of its product — particularly condominiums — purchased by young professionals. These professionals said Santos, are usually well-educated, often married and are dual income. Santos referred to the group as “DINKs”: dual income, no kids, and stated that their household incomes averaged $400,000 to $500,000 annually, making them well-positioned to buy in even the tightest Bay Area submarkets, such as Sunnyvale.
“They want to buy something because renting doesn’t necessarily pose a long-term benefit for many people,” said Santos. “They’re not building equity and the tax code still allows for deductions, so they’re missing out on those opportunities if they pay very high rent in the core areas.”
Despite this shift, however, Santos notes that Landsea has been adept at navigating the Bay Area’s fast-moving residential market and already more than six communities of varying sizes under its belt. Operating successfully within the Bay Area has meant learning to be extremely flexible, both when it comes to the company’s decision-making processes and flows of capital.
“It’s amazing because it’s wickedly competitive,” said Santos about the Bay Area development market. “We go up against a lot of big public builders, your Lennars, your Pultes, and they raise their capital through the public markets and they’re big machines that are refined.”
As a private company, said Santos, the company is always realistic about its numbers but a close working relationship with the company’s corporate executives and financers means that when necessary, decisions to go for competitive project sites can be made quickly.
“How does a newcomer like Landsea come in and do it? We just do it by being nimble and by being very, very quick,” explained Santos. “As a private company, we don’t have to go through an ungodly approvals process; we can make decisions awfully quick if it makes financial sense and meets our risk profile.”
Landsea selects its sites depending on what type of product can be built and zoning requirements, and chooses submarkets throughout the region that are desirable because of their proximity to public transportation, major job centers and schools. The developer often looks at lots that are unentitled and will work through the approvals process, or it will buy a property where the product has already been determined, stated Santos.
“That is what is so fun about Landsea,” said Santos. “Yes, we can do the big master-planned subdivisions, but we can also do small infill projects. If it makes financial sense, and we believe we can execute what buyers want in that market, then we’ll go for it.”
Landsea’s communities around the Bay Area range in size from Abigail Place, a 17-home infill subdivision in Danville to Sanctuary, a 78-acre master-planned community of 368 homes in Newark. Landsea has sold two of Sanctuary’s neighborhoods to Arlington, Texas-based DR Horton and Los Angeles-based KB Home. The third neighborhood, a 108-home neighborhood called Skylark, is located on South Darner Dr. and will be operated by Landsea. The subdivision’s first sales release is next week, April 27th. The homes will feature large kitchens, interactive home energy security and entertainment platforms, and covered patios. Catalina, Landsea’s development located at 1320 Civic Center Dr. in Santa Clara, is also coming soon and will feature homes with a variety of floorplans, including those that accommodate bonus rooms and live-work spaces.
“For us, our big focus has been building homes that are high-performance,” said Santos. “We want them to be designed as well as we can to enhance the quality of life of those who live there.”