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Land Prices, Labor Costs Hindering OC Development

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Land prices are one of the biggest factors inhibiting new construction in Orange County, according to speakers at our recent Orange County Construction & Development event.

DPR Construction's Paul Panelli, LBA Realty's Jett McCormick, Sonnenblick's Bob Sonnenblick, Real Estate Development Associates' Jason Krotts, Swinerton Builders' Dave Callis and Bisnow's Kevin Morgenstern
DPR Construction's Paul Panelli, LBA Realty's Jett McCormick, Sonnenblick's Bob Sonnenblick, Real Estate Development Associates' Jason Krotts, Swinerton Builders' Dave Callis and Bisnow's Kevin Morgenstern

“I don’t want to point the finger at the Chinese, but the amount of Chinese investment that’s come into Orange County is huge,” Sonnenblick principal Bob Sonnenblick said.

A lot of that money appears to be flight capital, he said.

“They’re buying land just to get their money out of China,” he said.

DPR Construction Project Executive Paul Panelli, LBA Realty Vice President, Construction and Redevelopment Jett McCormick, Sonnenblick Principal Bob Sonnenblick, Real Estate Development Associates, LLC Principal and Co-Founder Jason Krotts, Swinerton Builders Vice President and Regional Manager Dave Callis and Bisnow's Kevin Morgenstern
DPR Construction's Paul Panelli, LBA Realty's Jett McCormick, Sonnenblick's Bob Sonnenblick, Real Estate Development Associates' Jason Krotts, Swinerton Builders' Dave Callis and Bisnow's Kevin Morgenstern

As a developer, he said his deals have to make economic sense, and when looking around the OC these days, the land prices plus a new building do not make much economic sense.

“Unless you bought the land a couple of years ago, you really can’t make a new office building at today’s construction costs in Orange County,” Sonnenblick said. “It doesn’t pencil.”

Real Estate Development Associates, LLC Principal and Co-Founder Jason Krotts and Swinerton Builders Vice President & Regional Manager Dave Callis
Real Estate Development Associates principal and co-founder Jason Krotts and Swinerton Builders Vice President and Regional Manager Dave Callis

Construction costs have risen with labor costs.

“It’s just a busy market. Subcontractors are really busy right now,” Swinerton Builders Vice President and Regional Manager Dave Callis said.

As a result, his company is being very selective about the types of jobs it is chasing.

DPR Construction Project Executive Paul Panelli said he is seeing the same kind of pressure, particularly from the technical trades, where there is a shortage of labor.

“There’s so much work, we’re paying a real premium to get A players,” Panelli said.

There are also distinct differences between the price tag on union and non-union work. There can be around a 20% difference in project cost between non-union versus union work, according to Sonnenblick.

Callis said on certain project types, including a podium or hotel project, that difference can have a large effect on the cost of the project.