Thomas Noon, chief operating officer of western operations for D.R. Horton, says the firm’s La Boheme project may have been a precipitating factor in the rebirth of North Park.

Last year, San Diego County was coming off a banner year in home sales, so even a strong performance in 2005 couldn’t match 2004’s sparkling numbers. New home builders opened 13,353 escrows last year, down 2,217, or 14.2 percent, from the previous year’s 15,570, reports MarketPointe Realty Advisors.

The drop-off is a concern for home builders, but not a major one. The market remains solid by historic standards, and developers are adapting well to providing a product that includes more urban new homes and projects that reuse and rejuvenate existing properties.

The Top 25 New Home Builders, based on escrows opened in 2005, accounted for 9,345 homes. Sitting among those top builders are seven condo converters. Conversion activity, most often turning apartments into for-sale units, accounted for 3,049 of the units in escrow.

After a year’s absence, Bosa and Fieldstone rejoin the Top 25. Crescent Heights, Hammer Development, Silverstone Communities, Premier Coastal Development, John Laing Homes and Ocean Breeze Ventures made their debut. Five of the six (John Laing is the exception) made the list for their success with conversions.

On top with new home sales is Pacifica, which opened 849 escrows in condo-conversion projects. Thomas Noon, chief operating officer of western U.S. operations for D.R. Horton, correctly points out three of the top positions on the list — No. 1, No. 3 and No. 6 — are held by condominium converters, not builders.

Russ Valone, president of MarketPointe, makes it clear his list is based on home sales, not homes built. “There was a lot more conversion activity this year,” Valone says. Builders may be constructing from the ground up while converters are redoing existing construction, but “it’s not like these guys are going out and slapping lipstick on a pig and saying it’s now a new condo. A lot of these guys are doing a lot of renovating to these units.”

Giving up its three-year reign at No. 1, D.R. Horton moved to No. 9 with 430 escrows. The builder is working harder outside San Diego, “where the market is more solid and the product lines are more diverse,” says Noon. “San Diego has been turning into one of the least affordable places to buy a home in the United States and California. Basically, we are running out of land due to the building-out of land that was still vacant five to 10 years ago, ever-increasing no-growth political biases, the Multiple Species Habitat Conservation Plan, which froze hundreds of thousands of acres of land in perpetuity, and city fees of $30,000 to $50,000 per home.”

To make more use of land, D.R. Horton is building a much higher proportion of its San Diego homes in a mid-rise configuration, most of it Downtown and close-in neighborhoods like North Park and Hillcrest where density is being welcomed.

Horton’s North Park project, La Boheme, is something Noon is proud of because it may have been a precipitating factor in the rebirth of North Park. “When we started it, North Park had not seen any new construction for decades, businesses were in decline — lots of paycheck cashing and pawnshops and second-hand clothing stores. There were many vacant commercial spots, and some buildings were vacant and looked abandoned. The commencement of La Boheme about a year or 18 months ago seems to have precipitated a resurgence in new businesses, remodeling of existing buildings and filling in the empty space. The city is spending money on new asphalt, sidewalks are getting repaired. La Boheme is large enough to have had this kind of effect. A project of 20 to 30 units would have gone unnoticed.”

D.R. Horton is about to start a number of mid-rise projects Downtown and in Hillcrest and has begun a mid-rise project in Escondido.

Jennifer Bonasia, San Diego division president of Lennar

Also building from the ground up, Lennar Homes posted a great year at No. 2 with 724 sales, nearly double its 443 opened escrows in 2004 that ranked the builder No. 10. “We’ve had some tremendous growth,” says Jennifer Bonasia, San Diego division president of Lennar. “Sales were brisk all over the county.”

In 2005, Lennar offered about 49 percent attached homes with the remainder single-family. Lennar builds just about everything. Current offerings include Bressi Ranch, a master-planned community in Carlsbad with six neighborhoods with 623 homes in two years; Windward, ocean-view condos in Oceanside; and two condo communities nearing completion in South County’s EastLake. Sales were evenly spread throughout the county and throughout the projects.

Bressi Ranch is Lennar’s standout project. “That’s because it is six of our own neighborhoods in a master-planned community. That’s something we had not done before. We have been in many master plans and we’ve been the master developer, but we’ve never had six communities in one.” Bressi includes six market-rate communities and one affordable community.

“San Diego County buyers are always looking for a great value,” Bonasia says. “We have an ‘everything’ included’ program. So our homes don’t offer any options at all. We try to build into our included features things people would typically upgrade to.”

This makes it easy for buyers looking at models. What they see in the models they will find in their completed home.

Bonasia reports 2006 starting off brisk with good sales. Product is about 50/50 with attached and single-family homes. In the works is a condominium conversion in Downtown’s Little Italy and two attached communities breaking ground in Point Loma.

“San Diego has still got tremendous demand,” she says,“although home buyers are very sophisticated and definitely do their shopping. So we need to make sure we understand who our home buyers are going to be and what is important to them.”

At No. 4, Standard Pacific Homes logged in with 604 escrows to boost its ranking from No. 9. Contributing to the increase were several condominiums in San Marcos and more developments than previous years. “We had a mix of projects,” says Brian Utsler, San Diego division president. “We had one condo project that came on late in the year and two others that made up about 30 percent of our volume.”

As for the future, people are really searching for value. “With markets normalizing, people are shopping longer vs. making a quick buying decision,” Utsler says. “We are still seeing a nicely balanced market. We’ve had two recent openings that sold out. We are encouraged by that.”

Utsler forecasts a 24 percent increase in deliveries this year. A large part will come out of the Del Sur master plan, a project east of Carmel Valley with more than 3,000 homes.

Bob Cummings, president of K. Hovnanian Cos., says he looks forward to increasing sales 20 percent this year. (photo/lambertphoto.com)

Bob Cummings, president of K. Hovnanian Cos., reports the beginning of the year was better than the rest. “What we saw was the general cool-off of a boom market; a healthy adjustment. There wasn’t any sort of a bubble, just prices leveling off. Near the end of the year, we saw a normal seasonal (cooling), which we hadn’t seen in previous years because it was covered by the boom. So, we are going back to a healthy, expected market slowdown at the end of the calendar year.”

K. Hovnanian came in at No. 17 with 287 units sold. Sales were in North and South County in master-planned communities and Downtown in mixed-use and high-rise projects. “It was a mixed bag of product in mixed geographic areas,” Cummings says. In the detached market, they are predominately move-up buyers looking for a larger home.”

Cortez Blu, a Downtown high-rise offering 67 condominiums, is the 2005 project that stands out most for Cummings. K. Hovnanian is in 17 states and this is the first high-rise project for the company.

Future plans include more attached housing in Oceanside, Chula Vista and National City. Cummings looks forward to working in communities with vision that saw what happened to Downtown and want to see it happen in their city. K. Hovnanian builds active-adult communities nationwide and is looking to do its first in San Diego.

Cummings reports the usual seasonal funk at the end of the year is wearing off and he sees good traffic in his sales offices. He looks forward to increasing sales 20 percent this year.

2005 was a year of firsts for William Lyon Homes. The builder moved up from No. 25 to No. 11 with 360 sales. Selling more attached product, the builder broadened its spectrum of buyers. A project opened in Santee on land left vacant by Kmart.

Steve Doyle, president of Brookfield Homes, says the company expects to sell between 475 and 525 homes in 2006.

“It was our first venture in East County and it was our first venture into a redevelopment area,” says Kathy Courtney, director of marketing and sales for William Lyon Homes. Many of the communities that will be coming online in the next few years are in redevelopment areas. “We are taking them from commercial usage to residential,” Courtney says. Other William Lyon redevelopment projects include an old bowling alley and a motel.

Brookfield Homes ranked No. 7 with 440 sales in projects across the board. From Carlsbad to Chula Vista, the company offered multi-family homes in the $350,000 range to single-family luxury homes at $1.3 million.

Customers were looking for customization, says company President Steve Doyle. “The ability to customize and create a home of their own is very important to today’s buyers. After that, the usual things seem to apply; good school district (always No. 1), good design, a caring and understanding builder, project amenities and homes wired for the future.”

Looking to sell about 475 to 525 homes in 2006, Brookfield continues to work on four communities selling at Winding Walk in Chula Vista and two neighborhoods in Stonebridge Estates in Scripps Ranch.

“I am really proud of all the communities and neighborhoods we build,” Doyle says. “Each is a special place for me and comes with a unique history and story. For example, a couple of years back we built the Scripps Ranch Villages Community with the Corky McMillin Co. Within this community, we built seven different neighborhoods. A lot of our friends, employees and family members now live in that community. My family lives in that community.”

Mick Pattinson, president of Barratt American, says home sales this year will be slower than 2005, when the company closed 498 sales totaling a record $316.6 million.

Although it didn’t make the top 10 in opened escrows, Barratt American reported 2005 to be a year like no other. “Last year was a great year, there is no other way to describe it,” says Michael Pattinson, president of Barratt American. Barratt ranked 22 with 172 opened escrows. The company closed 498 sales totaling a record $316.6 million, including the sale of 122 lots to other builders. The firm’s “sales champion” was its eight-story Metrome in Downtown’s East Village, where 142 buyers closed escrow among the total of 184 condominium units.

In 2006, Pattinson expects to top 2005 with even more units at lower prices, but they won’t be in San Diego. The builder is looking toward Riverside. Pattinson says the terrific cost increases and political challenges builders face in San Diego don’t make the area very construction-friendly.

As for 2005, “there was a lot of talk of the bubble bursting,” Pattinson says, “but there was no bubble to burst.”

The bubble has just flattened a bit.

Valone predicts 2006 will be slower. He says most projects suited for conversion, have been converted. It also is becoming more difficult for smaller projects to make conversions as local government gets stricter in permits, including holding condo projects to higher parking standards than the apartment projects they would replace.

Valone says limited land availability has led to a decline in new units. “Part of the decline in sales in ’05 was a withdrawal of the speculator from the marketplace. We will continue to see some withdrawal of speculators as prices start to level out. This is all good for the market as speculators tend to drive prices up. I think ’06 will settle down to a true demand-driven marketplace.”