Horton Hears a Housing Opportunity


By Sharon Simonson

Texas-based D.R. Horton Inc., one of the country’s largest new-home builders, has acquired 2.4 acres in Los Gatos from Redwood City’s Sand Hill Property Co. where it proposes to build 25 homes as part of a larger mixed-use redevelopment.

Efi Luzon

It is the latest Bay Area land buy for the Fort Worth-based homebuilder, which is also pursuing new home development in Healdsburg, Menlo Park and Palo Alto as well as Aptos, Dublin, Morgan Hill, Gilroy and Vacaville, according to The Ryness Report, a housing-market publication of Danville’s Ryness Co.

“We are feeling pretty good that the market is starting to turn and are being aggressive about finding land right now, especially in the core Bay Area markets,” said Don Babbitt, a D.R. Horton Bay Area project manager.

During the housing downturn, the company behaved strategically, focusing on acquiring sites in the region with existing entitlements and approvals and has done a fair number of projects that are smaller than it would typically do, he said. “Now that the market is turning, we are looking for property all over the Bay Area, and we are actively looking for larger projects,” he said.

The Los Gatos property is part of a nearly 4.5-acre site previously occupied by a Ford dealership. The city of Los Gatos has approved the D.R. Horton piece for the development of one duplex, nine attached townhomes and 14 detached single-family homes, according to the city. One townhome and the duplex are to be sold as below-market-rate units.

Sand Hill is expected to build approximately 31,000 square feet of commercial space with 120 parking stalls on the roughly two acres that it retained.

Sand Hill purchased all four acres in the spring of 2006 for approximately $19 million. Horton paid in the range of $13.5 million for its piece, according to a source with first-hand knowledge who asked not to be identified because of confidentiality restrictions by Horton.

Efi Luzon, a senior vice president with Intero Commercial, represented both the land buyer and seller. The site is at the corner of Blossom Hill Road and Los Gatos Boulevard. Luzon declined comment for this story.

The dealership has been demolished, and the homebuilder hopes to begin grading in the next month or less, Babbitt said.

The Los Gatos townhomes are expected to sell for $750,000 to $900,000 and the single-family homes for approximately $1.7 million to $2.15 million.

In Menlo Park, the company plans 17 condominiums and nine single-family detached homes, Babbitt said. In Palo Alto, the company has a total of 37 small lots for two- and three-story detached single-family homes at its Elevation Palo Alto development near Alma Street. Horton is selling the Palo Alto homes for approximately $1.5 million, according to an analyst who tracks the company.

In Healdsburg, Horton has stepped in to buy property that has fallen into receivership after the previous developer struggled, said Assistant City Manager David Mickaelian. The site is within walking distance of downtown and consists of two phases with 38 homes total.

With 12,000 residents and approximately 3.5 square miles of land area, Healdsburg views the project as large, he said. “From Healdsburg’s perspective it is a pretty big project. Here anything over about 10 or 15 units makes news,” Mickaelian said.

The project’s first phase with 12 units has been partially started and consists of some affordable and attached units. The second phase will include only detached single-family homes in the 1,500 square foot range that are expected to sell in the “high $400,000s or low $500,000s,” he said.

D.R. Horton is one of two “giants” of the U.S home-building industry that have come out of housing’s deep downturn in good stead. The other is Washington, D.C., -based NVR Inc., said Alex Barron, a senior research analyst for the Texas-based Housing Research Center LLC.

“They are doing much better than everyone else,” said Barron, whose company is an independent, investor-research firm that advises institutional clients on the buying and trading of building or housing-related equities, options, debt and other financial instruments.

Barron previously worked at Franklin Templeton Investments in San Mateo focused on the housing sector after finishing his graduate studies at Stanford University in 2001.

“Horton has been making money for two years,” he said.

He does not believe the company is any more focused on the Bay Area than it has been in the past, but “they are more active,” he said. Both the Palo Alto development, where Horton is selling homes in the price range of $1.5 million, and the Los Gatos homes are outside of what he typically considers Horton’s “bread and butter,” he said. “Around the country most of Horton’s homes are in the $100,000 to $200,000 range. If you were to come to Texas, you would see them selling 1,000 or 1,200 square-foot homes for those prices.”

From 2006 to about 2009, Horton did not buy land and focused on eating through the existing inventory it already had, he said. About three years ago, the builder began buying sites, but “no home runs.”

“Even I was surprised that Horton was buying 10 or 20 lots, but they said they were finding deals where they could make money. Now from what I am seeing they are trying to stretch more, and they are going to stuff that isn’t their everyday stuff like $400,000 condos in the Bay Area and now $1.5 million to $2 million homes,” Barron said.

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