Watt Cos., a Santa Monica-based developer, is bailing out an Irvine-based builder that ran into trouble with a 130-home development in Riverside County.
The equity injection of $4 million to $5 million by Watt, a commercial, industrial and residential developer, means that Granite Homes Inc. can now move forward with its Mosaic project in Menifee, an unincorporated community near Temecula.
Financing troubles forced Granite to stop construction about five months ago when home sales slowed amid the credit crunch. Western Riverside County had been among the fastest growing areas of the nation this decade.
The equity investment, which closed in late March, has allowed Granite to pay off the
$15 million balance of its land acquisition and development loan with Cleveland-based KeyBank, a unit of KeyCorp.
Watt Chief Executive Jim Maginn said the investment was a good deal for the developer, despite the weakness in the housing market. The company previously has been a passive investor in a few small deals with Granite.
"Watt has the building expertise, strong balance sheet and operational experience necessary to identify and underwrite deals of this nature," said Maginn in an e-mail. "We continue to look for such partnerships throughout California."
The partnership could be a harbinger of more bailouts as established developers look for deals with less established builders that need help completing residential subdivisions. The financing crunch stemming from the meltdown of the subprime mortgage market has made it extremely difficult for builders to finance any kind of residential development.
Construction at the 43-acre site started again three weeks ago, with changes coming to the second phase of 63 homes. The second phase is slated to include many units that will be downsized and sold at a lower price point to reflect changes in the marketplace.
The most modest homes will be about 800 square feet smaller than had been originally planned, coming in at around 1,400 square feet, with prices in the mid-$200,000s. The subdivision is expected to be completed in 30 months.
"We are very excited to partner with the Watt group yet again and it does give us an opportunity in what is a tough homebuilding market to be out and open a new community and build and sell homes," said BJ Delzer, co-owner of Granite.
The San Gabriel Valley has one of the tightest industrial markets in Los Angeles County. And despite the downturn in commercial real estate, industrial leases are still getting signed though landlords no longer appear to have the upper hand.
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