O.C. developer has mixed Wall St. debut
Five Point shares rise 7% on first day. But price, amount raised fall short of target.
Orange County developer Five Point Holdings debuted on the New York Stock Exchange on Wednesday in a nearly $300-million initial public stock offering that produced mixed results for the company behind several marquee communities in California.
Shares of the Aliso Viejo firm rose as much as 11% from the initial price of $14 before closing up $1.04, or 7.4%, to $15.04 a share. Five Point ended the day with a market capitalization of about $3.3 billion.
However, the company developing Newhall Ranch in the Santa Clarita Valley, Great Park Neighborhoods in Irvine and the Shipyard and Candlestick Point projects in San Francisco had hoped to price shares as high as $20 and raise more than $400 million.
The company sold 21 million shares, raising $294 million. It could raise an additional $44 million, minus expenses, if underwriters exercise an option to sell 3.15 million more shares.
Miami-based home builder Lennar Corp., which had a 40.2% stake in Five Point following the IPO, also agreed separately to invest $100 million in the company.
Five Point, which was spun off from Lennar in 2009, is planning to use its cash hoard to help build its master-planned communities amid a persistent housing shortage in the state, especially along coastal areas.
“To build out these master plans you need to lay out a lot in advance before there is any money coming in,” said Gerd-Ulf Krueger, chief economist with Krueger Economics.
In the last two years, Five Point has lost money as it has worked to develop its communities and spent heavily on management, operations and other expenses.
The company bills itself as the largest developer of master-planned communities along the coast, an enviable but challenging position given the difficulty in building in the region.
Five Point noted that among its major risks for investors are environmental lawsuits and other challenges that have already delayed Newhall Ranch for years.
Stuart Miller, chief executive of Lennar, acknowledged that the pricing was lower than what the company had wanted.
“We opened a little bit below the range,” he said, during an interview on CNBC. “But it’s not about where you start. It’s about how you proceed and how you grow along the way.”
Many economists and housing academics blame the lack of construction over the last several decades as the primary reason California home prices and rents have climbed much faster than in the nation as a whole.
In its prospectus, Five Point pitched itself to investors partly on the historic level of under-building, relative to jobs and population growth.
The company noted that last year, San Francisco, Marin and San Mateo counties added 5.45 jobs for every new housing unit permitted, while Los Angeles County added 4.24 jobs for every housing unit. In Orange County, the jobs-to-permit rate was 3.66.
Home prices in San Francisco were up 6.4% in February compared with a year earlier, according to the widely followed Case-Shiller index.
In Los Angeles and Orange counties, prices were up 5.1% and agents in the region say buyers are packing open houses, given the shortage of listings.
“California is ground zero for supply constraint,” Miller said during his CNBC interview. “Demand continues to grow. The job market is strong, especially in these markets in California. It’s a great time to be a residential builder.”
Five Point, led by CEO Emile Haddad, serves as a master developer of communities and then sells lots to individual home builders, such as William Lyon Homes of Newport Beach or Florida’s Lennar.
Upon completion, Five Point’s Great Park Neighborhoods is expected to have 9,500 homes and 4.9 million square feet of commercial space. Newhall Ranch will have 21,500 homes, and the company’s two San Francisco projects will have 12,000 homes.
Five Point had previously attempted to go public, but put plans on hold last year amid volatility in the stock market.
“The market wasn’t open for IPOs [in 2016],” Haddad said during an interview on CNBC. “We waited until the market opened and here we are. We are very excited to be a public company now.”
The company trades under the ticker symbol FPH.