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Real Estate — Newland Joins With OC Firm to Buy Genstar Land

Real Estate: Venture

Includes CalPERS Funds

Irvine-based Institutional Housing Partners Inc. has joined with San Diego’s Newland Communities and the California Public Employees Retirement System to purchase Genstar Land Co. for $223 million, acquiring one of the biggest land portfolios available in the country.

IHP and Newland Communities have formed Newland-IHP Ventures LLC, the entity that is actually buying Montreal-based Genstar Land, itself a unit of a British American Tobacco PLC subsidiary.

Newland Communities will be the managing director of Newland-IHP Ventures, which is 50 percent owned by IHP.

“It’s an opportunity to buy a company involved with 27 different master-planned communities that are mature projects,” said Don Grant, a principal with IHP, referring to Genstar. “It’s all entitled at this point and it’s a diverse portfolio from California to Minnesota to Florida.”

IHP, an investment manager in homebuilding and land development, put up 5 percent of the price for Genstar. The California Public Employees Retirement System, or CalPERS, put up the bulk of the money , 90 percent , while Newland Communities invested 5 percent, said Dan Peoples, a spokesman for Newland Communities.

Grant said his firm used proceeds from an investment fund in which CalPERS is the biggest investor. IHP also has invested in the fund.

CalPERS Partner

A partner of CalPERS since 1992, IHP has worked as a consultant to the pension fund, helping invest its money in real estate. Currently, IHP has a portfolio that includes $500 million of capital under management. As part of that, IHP has invested in more than 50 active projects accounting for more than 20,000 homes.

Acquiring Genstar gives IHP and Newland control of projects in seven states: California, Florida, Georgia, Texas, Oregon, Washington and Minnesota.

Two of the bigger pieces are the 1,683-acre, 4,715-unit 4S Ranch community near Rancho Bernardo and the 1,700-acre, 4,273-unit Northlake community in the Santa Clarita Valley, just north of Los Angeles.

“It’s an opportunity to get a diversified portfolio around the country in what we think are promising markets,” Grant said. “The opportunity came along and it made sense to do it along with Newland.”

David Chapman, a partner with Irvine-based Haskell & White LLP who is in charge of the accounting firm’s real estate consulting business, sees the latest deal as a continuation of a trend that began in the mid-’90s.

Part Of Trend

“Major players are buying up large portfolios primarily to get control of entitled residential land,” he said. “Given the level of constraints on new development and the strong demand for new homes, there’s an opportunity to build a much stronger and larger business.”

Unlike previous efforts to control large tracts of land , such as in the late 1980s when homebuilders began stockpiling lots just as the market began its long and brutal descent , the current situation may be ideally suited for large institutional investors such as CalPERS.

“There are some very strong fundamentals in place both for the economy and the housing market,” Chapman said. “Even if we have a slowdown, the next three to five years overall should be strong for the housing market. In Southern California, we’re so greatly impacted by the shortage of new housing supply that there’s not much risk of overbuilding at this point.”

While it would be difficult to find a deal on the scale of Genstar, Grant said IHP will continue to look for similar opportunities. “Our business is to look for opportunities in the for-sale housing and for-sale development arena,” he said. “If they come along, we’ll play.”

So far, IHP hasn’t invested in homebuilders. Grant said he doesn’t rule out the idea, but added that IHP isn’t actively looking for such an opportunity.

“It’s something our fund is allowed to do,” he said. “We can take an ownership position in a homebuilder if it made sense. If something came along and it was interesting, we could do that.”

Ibrahim is a reporter for the Orange County Business Journal.

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