Some lawyers hopeful after upward trend in homebuilding spurs practice area growth
By Alexandra Schwappach
Daily Journal Staff Writer
The future of the homebuilding market hangs in a balance.
Though the market appears to be inching forward, that balance, many real estate market observers agree, rests heavily on continued job growth and careful steps in the marketplace. And as work keeps trickling in, real estate attorneys remain hopeful for a continued upward trend.
According to the National Association of Home Builders/Wells Fargo Housing Market Index released last month, builder confidence in the market for newly built, single-family homes rose for the sixth month in a row. The index, at 41 in October, is at the highest level since June 2006.
“This last recession tested everyone’s metal,” said Domenic C. Drago, partner and head of the real estate, land use and environmental practice group at Sheppard, Mullin, Richter & Hampton LLP. “But now that we’re starting to see an uptick in the number of transactions, I think we’re trending in the right way.
During the recession, the single-family housing market took the hardest hit, said Drago, who added that his firm has been seeing developers taking on smaller projects in order to stay in the market.
Homebuilders seem to be targeting recent college graduates with decent-paying jobs who are looking to step away from renting and own their first home, Drago said. But those types of decisions are still kept in check by the tight credit market and the higher cost of maintaining a house, Drago said.
“At some point, they’ll be making decisions to buy a home and to build their equity,” he said. “That is a demographic that everyone is looking at to be a key element to a recovery in the real estate market.
Job growth spurs housing demand, said Lewis G. Feldman, chair of Goodwin Procter LLP’s Los Angeles real estate capital markets group. But the recovery in housing prices is slow because of the supply overhang from single-family rentals and foreclosures.
“Before the Great Recession, it took an average of 1.3 jobs to create the demand for a home purchase, he said. “Post-recession, the latest figures indicate it takes over two jobs to create that same demand for a home. But he said the significant increase in the prices of public homebuilder stocks over the past year indicates the demand for new housing is reviving.
Todd Regonini, chief development officer of homebuilding company Regis Homes Bay Area LLC in San Francisco, said job growth and household formation go hand in hand. In Northern California, that means a steady increase in tech-industry jobs.
But possibly unlike Southern California, those individuals are looking to rent.
“Generation Y folks are going to be renters longer than previous generations,” he said. “They tend to stay single longer and marry later, and they look for work that’s more portable and mobile. They don’t want the anchor of home ownership yet.
Regonini said for-sale housing in California was up until the downturn, when the pendulum shifted to multifamily development. Regis Homes currently has 1,800 units of multifamily housing in development stages in the Bay Area.
“Where the market is going all depends on where you are,” he said. “I am a firm believer in being careful. Developers are served well by looking carefully at numbers and statistics.
Camellia M. Kuo, partner at Cox Castle & Nicholson LLP in Irvine, said that recently there have been a lot of “tentative ventures into the marketplace.” She cited data from the new subdivision-filing list of the California Department of Real Estate as an indication that home building is on the rise.
In September 2007, there were 288 filings for single- family homes in California. In 2011, that number dropped to 114 for the same month. This past September, it was up to 205.
“The market hasn’t roared back, but it’s much busier than it was,” she said. “And for me, it’s nice to get back to my bread and butter.
She said most of the work for her legal team over the past couple of years came in smaller projects, such as subdivisions and acquisitions of distressed properties. In the past six months, she said they’ve finally seen an uptick in new projects.
Toll Brothers Inc., the nation’s leading homebuilder, recently announced a partnership with Shea Baker Ranch LLC to develop Baker Ranch, a Lake Forest community approved for more than 2,000 new homes anticipated to be for sale in 2014. The development will include 1,780 single-family homes.
“We’re seeing a lot of activity, particularly in Orange County, with a number of homebuilders being very active, “said Robert M. Hamilton, partner at Allen Matkins Leck Gamble Mallory & Natsis LLP , which represented the Baker family in the transaction.
“Clearly, Toll is very bullish on the residential market in Orange County.
Seth Ring, vice president of Toll Brothers’ Southern California office, said developments like Baker Ranch are a good omen for the real estate market. He said one of the most desirable areas in Southern California is Orange County, where new communities and price increases show the market is “certainly headed in the right direction.
“Typically, the more desirable areas are quicker to return [from a downturn], both in the demand for housing and in pricing,” he said. “When we see those areas start to do well, it’s very encouraging.
Ring said Toll Brothers has started to see more people in its Southern California sales offices, and houses that used to take six months to sell during the recession are now moving in one or two. He attributes the uptick to lower interest rates, pent-up demand, consumer confidence and the changing lifestyle of home buyers. Other evolving areas, such the employment market, also help motivate people’s decision to buy a home, he said.
Of course, the increased home building requires legal work. Sanford “Sandy” Lechtick, founder of California-based legal search firm Esquire Inc., said that although the market still has a “ways to go,” his recruiting team has been getting a lot of business from law firms looking to make lateral hires. He said his company has had at least six full-service law firm clients looking to expand their transactional real estate practices.
“More law firms are reaching out to us looking for partners with practices in real estate and land use, he said, “that can help them grow and add bandwidth.
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