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The William Lyon Co.

Homebuilder consolidating, closes San Diego office

In yet another indication of the deteriorating housing market, The William Lyon Co. is closing its San Diego division in Carmel Mountain Ranch and is expected to have consolidated in Newport Beach around the end of the year.

The publicly traded homebuilder was ranked second in the county (opened escrows) with 271 opened escrows through the third quarter, according to MarketPointe Realty Advisors. Only Shea Homes had more pending sales here with 275. Both figures are a fraction of what sales might be expected by these firms in a strong market.

The financial picture for Lyon (NYSE: WLS) has been anything but pretty. For the quarter the ended Sept. 30, the homebuilder posted a pre-tax loss of $60.01 million on $182.24 million in operating revenues. This was compared with $10.5 million of positive net income on $311.24 million in revenues for the like quarter a year earlier.

For the first nine months of the year, Lyon posted a pre-tax loss of $133.29 million on $659.37 million in operating revenue. This was compared with positive net pre-tax income of $110.86 million on $1.02 billion in operating revenue for the first three quarters of 2006.

Jeff Miles, a Lyon sales and marketing director, who works out of the company's division on Innovation Drive, said the consolidation is simply a sign of the times.

"Fortunately, we have a lot of critical mass in Newport Beach," Miles said before adding that there are about a dozen employees in the Carmel Mountain Ranch office.

"We are still looking to open new projects."

Miles lives in Carlsbad, so his commute will remain about the same.

Surrounded by boxes, Miles concedes his firm geared up for a lot more homes than it delivered.

While the operations and administrative functions will be carried out up north, Miles said Lyon's projects here and their sales offices will not be affected by the consolidation.

"Our sales offices, construction operations ... all of those will remain intact," Miles said.

According to MarketPointe, as of Sept. 30, there were six active William Lyon projects in San Diego County. The firm also has multiple projects in the Inland Empire.

At Alcala @ Del Sur in the Black Mountain Ranch masterplan, 72 escrows of 83 had been opened. Those homes range from 2,460 square feet to 2,593 square feet and were priced from $703,745 to $761,188. This project opened for sales in November 2005.

Lyon is in the process of developing another 89-home development called Pasado in Del Sur. That project will have three- and four-bedroom floor plans ranging from 2,047 square feet to 2,360 square feet.

Other projects where there will be plenty of homes to sell include Altair in Santee where 12 of 85 escrows had opened, Maybeck @ 4S Ranch near Rancho Bernardo, where 41 of 120 had been spoken for, and Sunset Cove at Clairemont, where 22 of 77 had opened escrows.

Miles said every homebuilder he knows has had to cut back in some way.

Alan Nevin, a senior economist with MarketPointe Realty Advisors, who has been tracking the trend, seems to agree with Miles' assessment.

Nevin noted that Fieldstone cut back its local operations about two years ago when the homebuilding industry was just starting to go south.

"And a lot of the downtown gang has left," Nevin said. "Barratt sold, DR Horton sold, KB Home sold and Intracorp sold projects they had downtown. They had the realization that their plans called for substantial investment in high-density housing and they weren't prepared for such a commitment," Nevin said.

Putting the housing slump into perspective, Nevin said there will only be about 4,000 single-family and another 4,000 multifamily permits in the county this year. Last year permits for 4,753 single- and 6,024 multifamily units were pulled, according to the Construction Industry Research Board. As recently as 2004, permits for 9,555 single-family and 7,751 multifamily units were pulled that year

"Things were really steaming in '04," Nevin said.

Homebuilders such KB Home, DR Horton and others have not only consolidated divisions and/or downsized staffs, but also have been saving on soaring material costs by downsizing the size of the homes.

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