Silicon Valley’s real estate boom echoes south, unfreezing Gilroy, Morgan Hill residential projects

Homebuilding is taking off in southern Santa Clara County.

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The largest housing community ever proposed for Gilroy first surfaced in 1994. Only now, 20 years later, are the site’s first homes close to going up.

Infrastructure work for first section of Glen Loma Ranch, the 1,600-unit master-planned project in the “Garlic Capital of the World,” should begin this spring, city officials said. Standard Pacific Homes, the Irvine-based public homebuilder, is expected to build the phase, consisting of about 370 single-family detached units.

The activity is the most visible example that the South County cities of Gilroy (population 50,000) and Morgan Hill (population 40,000) are sharing in the residential recovery that is now well under way in Silicon Valley cities located to the north.

“It first started up north of us, but we’re now seeing — as usually happens — the effects get to Gilroy,” said Augie Dent, a land-use consultant for Glen Loma Group, the family-owned firm that has built numerous residential and commercial projects in the city including the Gilroy outlet mall. It also owns the 359-acre Glen Loma Ranch, which occupies a swath of pristine agricultural land between Santa Teresa Boulevard and Uvas Creek.

The region is different from Silicon Valley homebuilding markets in Santa Clara, San Jose and Sunnyvale, developers and city officials said. In contrast to rental-heavy cities to the north, for-sale dominates the South County market. Projects are usually smaller because of restrictive growth measures. And single family detached homes, rather than dense townhome and condo projects, are common.

The latter is especially attractive to homebuilders today, experts said.

“I think the reason we’ve had a lot of interest from the public homebuilders is they’re just not able to get detached to the north of us,” said John Telfer of South County Realty, who specializes in Morgan Hill. “They still feel there’s a strong demand for more traditional detached.”

Dustin Bogue, CEO of San Jose-based homebuilder UCP Inc., agrees. UCP recently sold out a small Gilroy project, Fairview at Eagle Ridge, and Bogue said he’s looking for more deals in the South County. He also likes Hollister in northern San Benito County, where UCP is selling a 20-unit community called Walnut Park.

“Morgan Hill, Gilroy and Hollister provide an opportunity for first-time buyers, move-up buyers, a small family to get a house that’s affordable with a backyard,” Bogue said. “We think long term that will do well.”

The residential markets of Morgan Hill (22 miles south of San Jose) and Gilroy (about 32 miles) are affected by growth-control measures that limit the number of new housing approvals that can be granted in one year.

In Morgan Hill, the city has granted about 250 housing allotments per year. “When the downturn occurred in 2009-2011, people continued to get their allotments but they didn’t build, so they asked for extensions,” said Andrew Crabtree, the planning chief in Morgan Hill. “That created a backlog pooling up. All of a sudden, we’re getting close to 400 units building. We’re looking at between 300-400 units a year for a couple years going through the building permit process.”

Jim Sullivan, a veteran residential developer who has done projects throughout the Bay Area, said the South County was hit even harder than the wider Bay Area during the downturn.

“The smart developers jumped into it when the prices were depressed, knowing the appreciation would follow,” he said. “Now Morgan Hill and Gilroy are both getting very good prices for homes.”

Telfer said residential lot prices sank about 40 percent in Morgan Hill during the recession from the peak of the market. But he says the market has recovered and is now above the peak achieved back in 2006. A single-family detached lot, ready to build, on 7,000 square feet of land in Morgan Hill is going for about $250,000, he said.

Glen Loma Ranch and another major project, called Hecker Pass, are the largest projects in the South County in years. Infrastructure work is already under way on Hecker Pass, a 425-acre area that is to include more than 500 units. Meritage Homes is working on the first phase of that project.

Glen Loma received its housing allotments from the city in the mid-2000s, but the economic crisis caused owners to press the pause button. “It’s been on hold waiting for things to pick up,” Dent, the project representative, said.

Construction should begin this summer. Dent expects a wide cross-section of buyers: Existing South County residents, refugees from higher-cost northern cities and first-time buyers.

“The markets in the South County are a function of the markets to the north, and job creation in Santa Clara County in general,” he said. “The fundamentals for both are very good. Gilroy is enjoying some of that.”

(Edited by: Baumann, Van Susteren)

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