he bucolic Santa Clara River valley features scenic rolling grasslands, oak trees and other habitat typical of Southern California chaparral.

But the vista belies its history of Los Angeles County development.

The picturesque and mostly undisturbed valley has been the scene of one of the county’s longest and most bitter land battles, with environmentalists fighting to stop plans for more than 20,000 residences and millions of square feet of commercial space on the property.

The battle over Newhall Ranch helped force a previous developer into bankruptcy and emptied the pockets of the California Public Employees’ Retirement System, which lost its entire $970 million investment in the project.

Now, it seems, inexorable growth is about to win.

Housing sales are bouncing back, mortgage rates are at an all-time low and the successor developer, Newhall Land Development LLC, is poised to break ground in the next 18 months provided it can overcome the remaining legal hurdles.

“We believe the market is ready,” said Emile Haddad, chief executive of Five Point Communities Management Inc., the development manager of Newhall Land and an affiliate of Miami homebuilder Lennar Corp. “Every indicator I look at leads me to believe this is a real recovery.”

Newhall Ranch, across from Valencia on the west side of the Golden State (5) Freeway, reached a major milestone this year when the county Board of Supervisors gave its final approval for the first two phases of the project, with more than 5,000 homes and millions of square feet of commercial space.

As might be expected, environmentalists haven’t given up. Five groups filed two lawsuits to halt the project after the votes, arguing the impacts are still too devastating and the approvals given indiscriminately. Development would come as close as 100 feet to the Santa Clara, the last river with a fully natural bottom in the county.

“They’re handing out approvals like lollipops,” said Lynne Plambeck, president of Santa Clarita Organization for Planning and the Environment, which has spearheaded the opposition and won key concessions that have reduced the project’s size.

There also are other issues, such as the tens of thousands of county homes that are in foreclosure and eventually could come on the market, depressing prices for years. Or the wisdom of adding a huge suburban community to an already overburdened freeway network – at a time when apartments in urban cores are a hot trend in development.

But Newhall Land is not alone in its reading that there is still demand for new suburban housing. Toll Bros. Inc. of Horsham, Penn., is getting started on a 2,000-home planned community in Orange County, while Westwood-based KB Home last month bought 174 lots in Irvine to create two housing developments.

Richard Green, director of the USC Lusk Center for Real Estate, said that while there is undoubtedly a reurbanization trend there also is a demographic in child-bearing years still attracted to tract housing.

“There is some movement back to cities, but what I find interesting is when you survey Millennials, they want smaller houses but they want houses on lots,” Green said. “I don’t think there’s a sea change in what people want for their houses: single-family houses on lots. And we don’t have a whole lot of those available and conveniently located in L.A.”  

Huge project

Bounded by the Ventura County line, the 5 freeway, the Santa Susana Mountains and the Los Padres National Forest, Newhall Ranch spans 12,000 acres near the Six Flags Magic Mountain theme park. Half of the land is virgin but there are farms and grazing pastures, with some oil and natural gas fields.

The land was part of the original Rancho San Francisco purchased by Henry Mayo Newhall in 1875 and transferred to the Newhall Land & Farming Co., established by his wife and sons. Eighty years later, the company developed the planned community of Valencia, most of which is now part of Santa Clarita, on the eastern section of the rancho.

The Newhall Ranch project was unveiled in 1994 with plans for more than 24,000 homes and hundreds of acres of business parks. It was scaled down over a series of hearings until a broad specific plan was approved in 2000.

The project now totals 20,885 homes and 249 acres of business parks that will total 5.5 million square feet of commercial space, including retail. Plans are to build it out in four phases and over two decades or more. Other elements include a 15-acre lake, paths for walking and bike riding, an 18-hole golf course, fire stations, a library and seven schools. Some 8,700 separate acres are being set aside as open space.

Newhall Land Development would construct the community and public facilities, such as the schools. But it would most likely sell off entitled plots for the homes and commercial development to builders such as KB Home or Lennar, similar to what it does now in Valencia. That is assuming it can clear its latest environmental hurdles.

Shortly after Newhall’s broad specific plan was approved in 2000, environmental groups such as Friends of the Santa Clara River, Sierra Club and Plambeck’s SCOPE, as well as Ventura County, sued Los Angeles County in Los Angeles Superior Court to try to stop the project.

They argued it would harm one of the last remaining unpaved river habitats in Southern California, pave over acres of floodplains, threaten endangered vegetation and species, and deplete groundwater supplies. A judge eventually required the developer to conduct another environmental review.

That new report took three years to complete and be approved. It forced the developer to set aside more property to protect vegetation and species, and for dedicated open space. But that hasn’t been enough for the project’s critics.

Many of the same environmental organizations, along with American Indian tribes, filed another suit in San Francisco Superior Court in 2011 against the Department of Fish and Game. It argued the state agency should not have issued permits to allow Newhall Land to reinforce some of the riverbank with concrete, arguing that it would harm the environment and the endangered spineflower, risk excessive flooding and disturb American Indian burial grounds. The judge has yet to rule.

Now those environmental groups have filed two suits against the Board of Supervisors for approving the first two phases’ tract maps, arguing again that the plans still would destroy local habitat and harm water quality.

Plambeck said the groups are continuing to request the development be smaller and not built near the riverbanks. She said that she isn’t anti-development or litigious, but feels she has no other recourse.

“No environmental organization likes to file litigation. It’s extremely stressful and it’s financially difficult,” she said. “This project is a huge problem and the courts are part of the public process so we are bringing it to another public level because there continue to be unaddressed issues.”

Newhall executives said that they are ceding several thousands of acres of open land, and will treat the river and habitat with care. Haddad added that he believes the latest lawsuits will be overcome, given they are essentially arguing the same issues as previous ones. He noted Newhall Land has faced more than a dozen lawsuits, winning nearly every one and making only modest revisions to the larger plan.

“We are trying to move forward but we seem to be pulled back and delayed by the same factors,” he said.

Market ready?

Assuming Newhall Ranch is successful in court, there is still the question whether the market is ready for such a large development.

After several years during which home sales bumped along the bottom after the real estate bust, the county housing market finally appears to be showing signs of life.

Homes sales countywide have been trending up, rising 21 percent in May compared with a year earlier, according to Seattle brokerage Redfin. In Valencia, sales rose by almost one-third in one ZIP code and 12 percent in the other.

Haddad said the rising interest by potential homebuyers checking out available residences is noticeable.

“We are seeing very high traffic numbers and the demand is much higher,” he said.

Still, foreclosures trailing the housing bust could undermine sales of new homes for years. The Santa Clarita Valley had some of the highest rates of foreclosures during the bust. In June, they were still running almost 100 percent higher than the countywide average of 0.3 percent of the housing stock, according to Renwood RealtyTrac LLC, a website that tracks foreclosures. There were 59,500 county homes in foreclosure in June.

But Redfin research analyst Tim Ellis said that with homeowners unwilling to sell at current prices, the total number of homes available for sale has plummeted. In Valencia, listings fell in one ZIP code by 31 percent in June over the previous month and there were only 93 homes up for sale in the entire community in June.

“There’s not a lot of resale out there and if they get out there with new construction (such as Newhall Ranch), they can have the upper hand,” he said.

Newhall Land’s first developments would be substantial. The first phase, Landmark Village, is a 293-acre plot on the northern end of the property that would be the site of some 1,400 single-family homes, townhomes and apartments. It also would include shops, offices, an elementary school and three recreational centers. If the most recent lawsuits don’t slow things down, Haddad said construction could start in just 12 months, with the first homes for sale in 2014.

The second phase, Mission Village, would include 4,055 townhomes, condos, live-work lofts and some single-family homes. Another elementary school would be built, along with a fire station and public library, as well as 1.5 million square feet of mixed-use retail and commercial space. A company executive said construction on this phase could occur simultaneously with the first, depending on demand.

The developer hasn’t set prices, but it’s quite likely they would be comparable with Valencia, whose two ZIP codes had median home price of $380,000 and $397,500 in June, according to Redfin. Ten percent of the residences would be affordable.

Financial questions

Prior to Newhall Ranch, the original Newhall Land & Farming Co. was once one of the most respected residential developers in California. The company began working on the planned community of Valencia in the late 1950s as California underwent its historic postwar boom.

By 1967, the first residents began moving in. Newhall Land went public in 1969 to fund completion of the development, which followed a simple business model. The company entitled and built the tracts, including public amenities like roadways and schools, and then sold off the lots to homebuilders who had to follow strict design guidelines.

Valencia today spans 15,000 acres and has a population of roughly 60,000 residents and is considered by many to be a model community. It is famed for its extensive paseo system that makes it possible to get around by walking or bicycling without having to set foot on a street – something being imitated at Newhall Ranch. There are less than 2,000 lots left to build out.

In 2004, as the housing boom picked up speed, Newhall Land made a big transition.

Miami homebuilder Lennar and a then-affiliate, LNR Property Corp., bought the company for about $700 million and took it private. Two years later, the companies secured up to $1.55 billion in financing from Barclays Bank PLC for developments in the Santa Clarita Valley. The prized asset: the planned Newhall Ranch development.

Then in 2007, at the height of the real estate bubble, the CalPERS along with MW Housing Partners bought a majority ownership stake in the venture, then known as LandSource Communities Development LLC, for nearly $1 billion.

CalPERS’ timing couldn’t have been worse. The next year the market tumbled, sales crashed and the new co-owners had little income to pursue the development. LandSource filed for Chapter 11 bankruptcy protection in June 2008 and emerged 14 months later. CalPERS bowed out, its massive investment completely written off, but Lennar hadn’t given up.

The homebuilder took a 15 percent stake in the reorganized company, Newhall Land, and assigned management to its affiliate Five Point, in which it has a 60 percent stake. Today, the company is backed or affiliated with multiple investment funds, including Anchorage Advisors LLC, Och-Ziff Capital Management Group LLC and Marathon Asset Management LP.

Newhall Land has not said how much it will cost to build out Newhall Ranch, but some industry insiders believe the figure could top $2 billion. In the long run, the company plans to rely on the tried-and-true Valencia model of selling off lots, but it still needs large amounts of capital to move forward.

As of November, Newhall Land’s total assets were estimated at $451 million with equity of about $262 million, most of which is now in the Newhall Ranch project, according to Lennar’s annual report. In fact, Lennar had about $45 million invested in its joint venture in Newhall Land, making it the third highest investment of its joint-venture efforts.

Haddad said that Newhall Land and its backers can build the massive development, but he also is keeping the door open to outside investors. Lennar, for instance, is courting a Chinese bank to fund its two planned developments in San Francisco. Haddad did not say specifically whether it was negotiating on this project.

“Is there interest in Newhall or projects from foreign investors? The answer is yes,” he said. “We all have the ability to fund this project, but this business is opportunistic and if someone has an interest in coming in and having seat at the table, there’s always room.”

Massive sprawl?

Then there are those who just object to big, planned suburban projects – they derisively call it “sprawl” – that were popular a few decades ago.

Ron Bottorff, chairman of Friends of the Santa Clara River, said he understands that Los Angeles needs to grow. He even agrees that there is room for more development in the Santa Clarita Valley. He just wants something smaller and not as close to the river and wetlands.

“It’s the old type of urban sprawl. It isn’t natural. It’s a new city plopped on a greenfield,” he said. “We want to keep the Santa Clara River as healthy as possible and this project would impact all the values of the river on one of the nicest stretches of the river.”

Added Plambeck: “We are looking now at a greenfield development that’s auto oriented in a time when we have to change away from that kind of land use. We can’t be depending on the automobile and creating pollution.”

There is no dispute the development could cause massive traffic tie-ups. Already, rush-hour traffic on the Golden State is slow in both directions throughout the valley. As a result, Newhall Land plans to spend at least $60 million more on various roadway and bridge improvements, while the California Department of Transportation is expanding area freeways by adding dedicated truck and carpool lanes. (See article page 20.)

Robert “Mac” McMurry, partner at law firm Gilchrist & Rutter PC, a past adviser to Newhall Land, believes there is plenty of demand for suburban tract housing. He argues that the real estate bust disrupted what had been a natural cycle of homebuying.

“All the way out to Riverside is built out. Everything in Central L.A. is built to a maximum. So Newhall Ranch is squarely in the middle of where development in Southern California can go,” he said. “You are seeing enormous pressure from people who haven’t been able to buy since 2006.”

Newhall Land is also acutely aware of the criticism of suburban development, especially how it leaves residents long commutes to jobs in cities. That is why it has built office parks that now house thousands of businesses that provide jobs – and a primary reason the new development has so many acres of similar business parks.

The Valencia Commerce Center, for example, spans 137 acres and 8 million square feet of developed office and industrial space, and it is approved for an additional 6 million square feet. That still doesn’t make it the largest. Among the notable companies headquartered in the valley are mining company U.S. Borax; biotech Mannkind Corp.; and Precision Dynamics Corp., a maker of hospital identification tags that just moved there.

Newhall Land estimates its new ranch community would add 60,000 permanent jobs and 215,000 indirect jobs – in short, a place where employees can work and people can live.

“This is a place where families can raise kids and businesses can flourish,” Haddad said. “It’s a very large and important project in a market that has a lot of land constraint and supply constraint.”

Building Newhall Ranch

Newhall Land & Farming Co. began planning the project two decades ago.

1994: Newhall Land files project application with L.A. County for 24,000 homes and business parks.

1996-1998: Hearings held by county planning commission and supervisors.

1999: Newhall Ranch’s broad “specific plan” receives unanimous approval from supervisors. Lawsuits filed by local agencies, governments and environmental groups challenge plan and environmental impact review.

2000: Court decides additional environmental analysis is necessary.

2001-2003: Additional hearings held before planning commission and supervisors, who approve revisions to specific plan.

2003: Judge forces additional modifications, including preserving endangered fish, but allows project to continue.

2004: Supervisors approve smaller specific plan for 20,885 homes and 5.5 million square feet of commercial space; certify environmental review.

2006: First phase of project, Landmark Village, begins planning commission hearings.

2008: Planning commission approves tentative tract map for Landmark Village.

2009: Landmark Village and second phase of project, Mission Village, undergo federal and state environmental hearings to receive various permits.

2010: Mission Village begins planning commission hearings. State Fish and Game Department issues state permits for Newhall Ranch specific plan. Environmental groups file lawsuit to halt permit issuance in early 2011.

2012: Supervisors approve Landmark Village and Mission Village tract maps. Five environmental groups file suit against both approvals.

Solving Gridlock

With more than 40,000 homes planned for the Newhall and Tejon ranch communities in Los Angeles County, traffic on the Golden State (5) Freeway is expected to double by 2030.

That kind of additional traffic could result in utter gridlock and has been ammunition for critics of the projects. Even supporters of the developments acknowledge that kind of traffic increase could be dicey for a region that already suffers from rush-hour congestion.

“It’s not just a one-way commute. There are probably just as many people who come into the valley as leave the valley. If you build more homes up here, it’s hard to say what that ends up doing, but it could make that morning commute a little tougher,” said Ryan House, vice president at Jones Lang LaSalle Inc. who works and lives in Santa Clarita Valley.

Developers have taken note, working with the California Department of Transportation on significant freeway improvements required by environmental reviews.

The primary Golden State projects will total more than $500 million and include constructing truck and carpool lanes as well as an elevated ramp to connect the carpool lanes to the Antelope Valley (14) Freeway.

The truck lane project, which should be completed in 2014, would widen the freeway and extend the truck lane 1.4 miles from Gavin Canyon to the freeway on the northbound side and 3.7 miles from Pico Canyon Road and Lyons Avenue to the freeway on the southbound.

The carpool lane project, still in the design stage, would extend the existing carpool lane on the Golden State for about 13 miles from the Antelope Valley Freeway almost to Parker Road. A ramp connecting the carpool lanes between the freeways is under construction and expected to be completed next year.

CalTrans is also already working on a nearly $14 million repaving project at the border of Los Angeles and Kern counties near Tejon Ranch to extend the service life of the highway. It is expected to be completed next year.

All work is being done in phases and freeway lane closures are limited, mostly on evenings and weekends. Funding is coming from the state, dedicated county sales taxes and the developers.

Emile Haddad, chief executive of Five Point Communities Management Inc., manager of Newhall Ranch, said he is confident the improvements will keep the freeway running.

“I’m not really concerned,” he said, noting the California Environmental Quality Act requires developers to reduce any negative impacts from their projects.

– Jacquelyn Ryan