The Colony

Newport Beach, California

Project Type: Residential

Case No: C031017

Year: 2001

SUMMARY The Colony represents the highest end of market-rate luxury apartment communities in Orange County, California. It is marketed to a clientele that expects an amenity-rich environment, comparable to one experienced at a resort hotel. This clientele of “luxury renters,” the existence of which was brought about by a prosperous economy and changing lifestyles, consists primarily of professionals and empty nesters, many of whom are tapping into built-up real estate equity and now want an enhanced location and lifestyle. Others desire a second home without the long-term commitment or capital investment that buying involves. Located in the 622-acre (252-hectare) Newport Center, which was built in 1965, the Colony adds a residential layer to Newport Center’s commercial, retail, and entertainment uses. It decreases society’s impact on the environment by providing a way for people to work, live, shop, and participate in the southern California lifestyle without the need for vehicular transportation. The development owes some of its success to the soundness of its founding concept and contributes to the antisprawl equilibrium resulting from balanced land use.

FEATURES

Residential infill in a high-density commercial area Large, upscale rental units offering deluxe amenities and hotel-quality services Ocean, harbor, and city views On-site design center for selecting unit upgrades The Colony

Newport Beach, California

Project Type: Residential

Subcategory: Multifamily Housing

Volume 31 Number 17

October-December 2001

Case Number: C031017

PROJECT TYPE

The Colony represents the highest end of market-rate luxury apartment communities in Orange County, California. It is marketed to a clientele that expects an amenity-rich environment, comparable to one experienced at a resort hotel. This clientele of “luxury renters,” the existence of which was brought about by a prosperous economy and changing lifestyles, consists primarily of professionals and empty nesters, many of whom are tapping into built-up real estate equity and now want an enhanced location and lifestyle. Others desire a second home without the long-term commitment or capital investment that buying involves. Located in the 622-acre (252-hectare) Newport Center, which was built in 1965, the Colony adds a residential layer to Newport Center’s commercial, retail, and entertainment uses. It decreases society’s impact on the environment by providing a way for people to work, live, shop, and participate in the southern California lifestyle without the need for vehicular transportation. The development owes some of its success to the soundness of its founding concept and contributes to the antisprawl equilibrium resulting from balanced land use.

SPECIAL FEATURES

Residential infill in a high-density commercial area Large, upscale rental units offering deluxe amenities and hotel-quality services Ocean, harbor, and city views On-site design center for selecting unit upgrades

OWNER/DEVELOPER

Irvine Apartment Communities 550 Newport Center Drive Suite 300 Newport Beach, California 92660 949-720-5500 Fax: 949-720-5550 www.irvineco.com

ARCHITECT

McLarand Vasquez Emsiek & Partners, Inc. 695 Town Center Drive Suite 300 Costa Mesa, California 92626 949-809-3300 Fax: 949-809-3350 www.mve-architects.com

LANDSCAPE ARCHITECT

Burton Landscape Architecture Studio 307 South Cedrose Avenue Solana Beach, California 92075 858-794-7204 Fax: 858-794-7207

BUILDER

Sares-Regis Group 18802 Bardeen Avenue Irvine, California 92612-1521 949-756-5959 Fax: 949-756-5955 www.sares-regis.com SITE DESCRIPTION

The Colony is located in the midst of Newport Center in Newport Beach, Orange County, California, at the southern end of the greater Los Angeles metropolitan area. Newport Center—half a mile (0.8 kilometer) inland from Newport Harbor, the largest recreational boat harbor in the world—is a mixed-use development that is part of Irvine Ranch. Irvine Ranch has been owned by the Irvine Company since the 1860s and is one of the nation’s largest master-planned communities, a 90-square-mile (233-square-kilometer) development that includes the cities of Irvine, Newport Beach, and Tustin Ranch. The 622-acre (252-hectare), mixed-use Newport Center complex includes offices, hotels, restaurants, and a premier retail center, Fashion Island, at its center. Fashion Island is an oval-shaped, 85-acre (34-hectare) mall with 200 stores, 40 restaurants, and two multiplex cinemas. Irvine Apartment Communities (IAC), an affiliate of the Irvine Companies, developed and built the project.

At the periphery of Newport Center are low-rise office parks and relatively tall office buildings—a few as high as 20 stories—and three hotels. One-third of the roughly one-square-mile (259-hectare) Newport Center is occupied by the Newport Beach Country Club. Newport Center also is home to 800 firms that employ approximately 15,000 people, serving a region of roughly 75,000 full-time residents and 100,000 people during the summer months.

The Colony represents the first high-density luxury apartment building developed by IAC. IAC worked to capitalize on the exclusivity of the Fashion Island mall address, incorporating the Fashion Island name in the property’s name during the initial marketing period. The property also is the first residential structure built in recent years in the Newport Center complex. The Colony fills a need for housing in this area of high-tech industry and commercial development.

DEVELOPMENT PROCESS

The property was the only parcel zoned for multifamily residential development in Newport Center. The approval process was fairly routine and the site required no unusual infrastructure or grading. With a height restriction of 225 feet (69 meters), it would have been permissible to construct a 20-story building, but IAC believed that the low-rise concept would appeal the most to residents of a rental property. It was decided that a low profile would enhance the natural landscape and that hiding the parking was also desirable. As such, the parking facility was designed as a partially underground garage.

Other property at Newport Center zoned for residential use was permitted for single-family development, and IAC had established 400 condominium units among three townhouse communities associated with the country club. The Colony would be IAC’s first high-density luxury multifamily project, and IAC understood that the concept and marketing strategy would have to be different from those used for developing townhomes. For example, the units would have to be considerably larger than IAC’s standard apartment units. The Colony’s floor plans, on average, are 200 square feet (19 square meters) larger than IAC’s typical apartment units and range from 1,008 square feet (94 square meters) for the smallest one-bedroom unit to 1,546 square feet (144 square meters) for a two-bedroom-with-den unit. Another crucial element would be the amenities—they needed to be top-notch, in luxury surroundings.

DESIGN AND CONSTRUCTION

The Colony is a 245-unit, low-rise infill apartment complex in a cross-axial configuration of four residential quadrants, each organized around its own landscaped courtyard. A gated, palm-lined entry drive, positioned across San Clemente Drive from the Orange County Museum of Art, leads to an 80-foot-diameter (24-meter-diameter) motor court. Inscribed in the pavement of the circular motor court is a bronze-edged compass rose. Coming off this compass are pedestrian paseos leading to Fashion Island, the country club, and other amenities of Newport Center. All units are based on six floor plans, but varying arrangements have allowed for four unique quadrants, each comprising three- and four-story clusters facing a themed courtyard, and offering panoramic views of the mountains, the golf course, the harbor, the ocean—even Catalina Island, 30 miles (48 kilometers) due west. The courtyards are essentially closed, opening to the paseos through wide, two-story mural-walled archways between units at grade level. The courtyards help to provide a neighborhood identity for each building in the complex, creating the feel of small communities. Each theme is carried out in the fountains, artwork, and pavement materials.

On axis with the gated entry to the complex is a large clubhouse with a generous pool and spa. There also is a separate health club facility. The property falls 28 feet (8.5 meters) from one corner to the diagonally opposite corner. The designers took advantage of this topographical feature by creating underground parking under two quadrants at the elevated end, and two levels of underground parking at the lower end. Locating the parking underground maximized the surface grade allotted to residential units, while simultaneously allowing residents to park their cars a mere elevator ride away from their units. Each unit is assigned two reserved parking spaces. Thus, no surface parking lots mar the site, and the gated, underground parking is accessed directly from the street at the lower end of the site, eliminating the need to pass the main entry.

The sloping topography also allowed the designers to adjust the heights of the residential units to maximize views of surrounding properties. Keeping building heights to 50 feet (15 meters)—well under the allowable 225 feet (69 meters)—accomplished this. The developer, which has continuously developed Newport Center in its entirety since 1965, opted to forego the permissible higher density, instead maintaining the integrity of the community by adding only projects that do not compromise what is already there. AMENITIES AND SERVICES

A wealth of amenities and services make up the luxury lifestyle package at the Colony. A full-time concierge is on staff to arrange everything from valet service, restaurant reservations, and theater tickets to catering and travel assistance. Daily or weekly maid service, and handyman services also are available. When residents travel, they can rely on the on-site staff to walk their dogs and to pick up their mail and newspapers, achieving a desirable “lock-and-go” lifestyle.

Security is enhanced by a staffed entry gate with a monitoring system for guest access, and units are equipped with alarm systems. Other amenities include a resort-style clubhouse with a catering kitchen, a 24-hour fitness center with a personal trainer and fitness classes, an outdoor junior Olympic pool and Jacuzzi, and hotel-like services, such as the provision of pool towels and beverages.

Unlike most low-rise projects, the Colony has elevators. All apartment units have windows on at least two sides and the largest floor plan features windows on all four sides, offering views in all directions. Units include six-wire telephone lines, high-speed Internet access, and gourmet kitchens with gas ranges and microwaves. No refrigerator is provided, however, because residents generally prefer to bring their own.

Units also have walk-in closets and a separate laundry area with a full-sized washer and dryer. Design features include gas fireplaces and nine-foot (2.7-meter) ceilings. Furthermore, a new program was initiated at the Colony to allow residents to customize their units. At an on-site home decor center, residents may select flooring upgrades, window treatments, closet fittings, and moldings, among other options.

OWNERSHIP AND FINANCING

IAC is among the largest owners and operators of multifamily properties in Orange County. The company began developing apartment communities in 1969. After three decades of developing exclusively at Irvine Ranch, in Orange County, the firm has expanded into other regions of California, including Silicon Valley, San Diego County, and West Los Angeles. The company now owns and manages 71 rental apartment communities totaling approximately 24,000 units.

IAC, headquartered in Newport Beach, California, is currently a wholly owned subsidiary of the Irvine Company. In 1996–1997, when IAC was developing the Colony, the firm was a publicly held real estate investment trust (REIT); in 1998, however, the Irvine Company bought back the stock it did not own.

MARKETING AND MANAGEMENT

Marketing of the Colony began in July 1997, about six months before the anticipated opening of the project. IAC operates an apartment finding center, where rental specialists refer prospective renters to the property, but an on-site leasing trailer attracted more attention. Flags, signage, and landscaping were used to capture the attention of motorists, and about 50 to 60 prospects per week were culled from drive-by traffic.

The property also was advertised in newspapers and local magazines and promoted through press releases. A December 2, 1997, article in The Orange County Register featured the project in its real estate section. Advertising and other materials indicated that the Colony would be the first luxury apartment building built in the area since the early 1990s. IAC held a VIP event with community leaders, including the mayor, the city council, and owners of local businesses. An agent/broker open house also was held. IAC provides a broker referral service to local agents, offering those who bring in a lease a 3 percent commission. These efforts resulted in a waiting list of approximately 1,800 prospective residents.

The waiting list was whittled down to about 800 serious prospects. Information on the project, including floor plan illustrations, was mailed to them soon after rents were established. IAC had to pare down the waiting list further, so letters were sent out asking for a deposit of $1,000. Prospects were given a deadline to make their deposit after seeing models and choosing the floor plan they wanted, and were given the customary three days to change their minds. Forty-one prospects returned a deposit, and they were assigned priority for the units of their choice in the order in which deposits were received. The $1,000 deposit was a departure from IAC’s usual policy, typically requiring a deposit of $100. The deposit strategy worked well: Those who remitted $1,000 had a strong interest in renting at the project, and no significant cancellations were reported.

Lease-up pace averaged 20 per month, with regular rent increases along the way. Because of the level of interest in the project, IAC was able to reduce its advertising budget and eventually even pull scheduled ads from local news media. The primary target market was empty nesters, with professional singles and couples viewed as a secondary market niche. At lease-up, the marketing strategy had proven itself: About 60 percent of the residents were over the age of 45 years, and 32 percent were between 26 and 45. About 45 percent consisted of single-person households, while 31 percent were married couples. The remainder comprised unmarried couples or people living in roommate situations. Nearly 70 percent had incomes exceeding $100,000, with an average household income of $195,000; the average income of renters today is $210,000. There has been very little turnover—the Colony is consistently occupied at 95 percent or more.

Years ago, the Colony’s high-end rental concept was attempted by another developer in San Diego at lower price points, with modest success. Today, the Colony’s rental rates are the highest to be found in Newport Beach, where the average monthly rent in 2000 was $1,006. Having set a precedent for the region’s residential rental market, the project is being emulated in similar communities. IAC retains ownership of all the projects it develops, and therefore has a vested interest in their long-term profitability. At the Colony, service became a crucial element of concern as well. As such, IAC decided to provide hotel-caliber customer service in an environment of luxury, providing the project’s residents with a wide range of services.

EXPERIENCE GAINED

IAC’s policies and procedures had to be restructured for the Colony because of its anticipated upscale clientele, who expected enhanced customer service. IAC found the experience gained at the Colony to be useful for developing and leasing in what was for them a new type of market, allowing the company to develop similar high-end projects elsewhere.

In retrospect, IAC believes that demand existed for even larger, more expensive units and that it undersold the project. The firm believes that including an upscale penthouse-type unit would have helped to capture an even higher-end market niche.

IAC had never before offered an upgrade program, which turned out to be a popular way for renters to personalize and customize their units. About 30 percent of tenants have incorporated upgrades in their units, ranging from the permanent, such as custom flooring, to the cosmetic, such as window treatments. Renters pay for these upgrades, and when they move out, all upgrades are retained in the apartment, increasing the value and, therefore the market rate of the unit. PROJECT DATA LAND USE INFORMATION Site area (acres/hectares): 6.4/2.6 Total dwelling units planned/completed: 245/245 Gross density (units per acre/units per hectare): 38/94 Off-street parking spaces: 612 (in an all-subterranean carport)

LAND USE PLAN Acres/Hectares Percentage of Site Buildings 2.5/1.0 39 Roads/paved areas 0.65/0.26 10 Common open space 3.25/1.32 51 Total 6.4/2.6 100

RESIDENTIAL UNIT INFORMATION Range of Unit Size Initial (Square Feet/ Number of Rents at Unit Type Square Meters) Units Built Lease-up 1 Bedroom/1 bath 1,008/94 12 $1,600–1,675 1 Bedroom/1 bath + den 1,087/101 39 $1,725–2,125 2 Bedroom/2 bath 1,273/118 83 $1,885–3,160 2 Bedroom/2 bath 1,365/127 32 $2,095–3,445 2 Bedroom/2 bath 1,414/131 9 $2,245–2,345 2 Bedroom/2 bath + den 1,546/144 70 $2,635–4,760 Total 245

DEVELOPMENT COST INFORMATION Site acquisition cost: N/A Site improvement costs: $1,800,000 Construction costs: $25,000,000 Construction cost (per square foot/per square meter): $75.77/$815.61 Construction cost per unit: $102,040 Marketing: $1,009,000 Total development cost (not including site acquisition): $45,600,000

DEVELOPMENT SCHEDULE Planning started: January 1995 Site purchased: August 1996 Construction started: August 1996 Leasing started: July 1997 Project completed: May 1998

DIRECTIONS

From John Wayne Airport: Exit the airport onto MacArthur Boulevard, going south toward Newport Beach. At the Jamboree Road intersection (approximately 1.2 miles [1.9 kilometers]), bear right onto Jamboree Road. About 0.2 mile (0.3 kilometer) past the San Joaquin Hills Road intersection, turn left onto Santa Barbara Drive. Turn left at the second street, San Clemente Drive. The Colony is located at the southeast corner of this intersection, and the guest automobile entrance is the first driveway on the right after turning onto San Clemente Drive.

Driving time: approximately 15 minutes in non–peak hour traffic.

Karen Danielsen, report author David Takesuye, editor, Development Case Studies David James Rose, copy editor Joanne Nanez, online production manager

This Development Case Study is intended as a resource for subscribers in improving the quality of future projects. Data contained herein were made available by the project's development team and constitute a report on, not an endorsement of, the project by ULI-the Urban Land Institute.

Copyright © 2001 by ULI-the Urban Land Institute 1025 Thomas Jefferson Street, N.W., Suite 500 West, Washington D.C. 20007-5201 The formal, palm-lined entrance leads past a gatehouse to an 80-foot-diameter (24-meter-diameter) motor court that is paved with a compass rose design. The downhill side of the site affords the best views of Newport Harbor and also exposes the entrance to the underground parking area. Entrances to the four residential clusters are off the open-ended paseos. Each cluster is open to a paseo through a wide, two-story-high archway. The common swimming pool and adjacent spa are among the amenities that give the Colony the ambience of a resort hotel. The Colony site (labeled “Residential Site”), at the southeast corner of San Clemente Drive and Santa Barbara Drive, is outside the central loop that rings Fashion Island (labeled “Retail Center”). Note the traditional arrangement of decreasing density outside the retail core, with a ring of hotel, commercial, and restaurant facilities intervening between the retail and residential uses, and the golf course at the outermost layer. The formal entrance to the Colony establishes a cross-axial plan that reserves the main entrance axis for common uses, such as a pool and fitness center. A perpendicular axis creates pedestrian paseos and four quadrants of residences, each clustered around a themed courtyard.