Five Point Holdings (FPH) - Takeaways From my Trip to California
Takeaways From the Road
From 11/14-11/21, I had the opportunity to meet with the Five Point Management team, tour their properties (Great Park, Valencia, San Francisco), attend the Howard Hughes Investor Day, and participate in the Three Part Advisors Ideas conference. This trip was essentially a week-long learning experience about land and housing development.
Five Point Management Meeting
The meeting with Five Point’s management team provided insights into the team’s current focus and outlook for the business. I won’t go into specifics about the discussions, as the conclusion remains unchanged: this company has significant opportunities ahead, and the management team is more than capable of navigating California’s governmental challenges related to zoning, entitling, and developing land. I’d note that the call premium for their debt recently declined from 104 to 102; it would not surprise me to see them call a portion in the near term.
Great Park
Great Park amazed me. It’s a shame we only own 37.5% of this development. It’s a family-friendly neighborhood with beautiful parks, homes, and school systems. I spent hours walking around the property (in the process, forgetting where I parked) and thought to myself: if you want to live in Irvine, California, or nearby, Great Park should be your top choice. Seeing kids walk home from school and play on the sidewalks indicated the area’s incredible safety. It was heartwarming to witness.
Houses are being constructed in waves, and progress continues at the remaining undeveloped sites. Based on my observations, the unsold land appears well on its way to being ready for sale to homebuilders. With approximately five years of land inventory remaining until the property is sold out, I expect the price per acre to continue increasing. Once the land is gone, it’s gone. I can’t imagine a family touring the community and thinking it’s not for them—it has everything.
One of the main reasons for the recent price-per-acre increase is the limited supply becoming available from other developers, such as the Irvine Company. I toured a few model homes (all Lennar) that looked excellent. Notably, Google Maps is significantly outdated. Based on my on-the-ground estimates, the map below shows red as land sold or under construction and green as unsold land.
Valencia
Valencia is quite different from Great Park and Candlestick. It is the largest property of the three, spanning 15,000 acres, but its topography is very hilly. In contrast, Great Park (a former airbase) and Candlestick are relatively flat parcels. Flat land is much easier to develop, requiring less dirt movement, which lowers development costs. Conversely, Valencia’s terrain results in higher capital expenditures and the cost of goods sold, impacting its margin profile.
Valencia is not as desirable a location as Irvine or San Francisco. The surrounding area is less developed, with fewer large corporations occupying office space. Sunkist, an orange juice company, is headquartered at the property’s entrance. When I picked up my rental car, I told the service rep I was traveling to Valencia. The first sentence out of his mouth was, “Stay away from Magic Mountain.” Magic Mountain is directly across the street from Five Points community. Higher costs and a less desirable location result in a lower price per acre and a less favorable margin profile compared to Great Park.
Approximately 20% of the property has been developed, leaving several decades of development potential. Entitling and zoning this land are challenging. Some parcels have been flattened and appear near completion. I expect land sales to become more frequent over the next few years. The community is very nice, particularly Confluence Park, a common area with two pools and indoor seating.
San Francisco
I took an Uber to the outskirts of Candlestick Park and walked about half a mile to Candlestick Point State Park Recreation (formerly the Candlestick Stadium site). During the management meeting, they mentioned that the surrounding area needs significant cleanup before meaningful building can occur. I quickly understood what they meant.
Positives:
The ground is relatively flat, which simplifies development. However, the area is currently covered in gravel and asphalt, which may pose challenges during removal.
Once developed, the bay views will be stunning. Condos or high-rise apartments could command significant premiums due to these views, boosting land values.
No vacant land in or around San Francisco makes this property highly desirable. For context, I recommend reading about “California Forever.”
https://www.cbsnews.com/sacramento/news/california-forever-promises-new-solano-county-investments/
Negatives: The surrounding area needs work and does not currently appear upscale. Nearby homes are listed between $500K and $700K, while homes across Bayshore Freeway (Route 101) are priced above $1M. This highlights the potential opportunity for gentrification.
With the plan to create a tech and innovation hub, attracting high-paying jobs to the neighborhood (at least for now) seems unlikely. The road to Candlestick Park is lined with concrete construction slabs, and the atmosphere feels rundown and uninviting. Transforming this area into a hub where employees earn $250K+ salaries appears to be a significant challenge. It seems like a classic chicken-and-egg problem: Can you attract high-paying jobs to improve the surrounding area, which would support higher-end apartments, condos, and townhomes?
The lack of basic amenities—such as grocery stores, restaurants, and retail shopping centers—makes this property feel relatively isolated. At the edge of the property, off Carroll Avenue, is a relatively new apartment complex, the Alice Griffith Apartments. This affordable housing community has 339 units, offering a mix of one- to five-bedroom apartments and townhomes. As of 2019, the income eligibility for Phase 4 units is capped at a maximum of approximately $50,000 for a single individual. Adjusting for inflation, I estimate the current maximum income to be around $65,000 today.
This reinforces the difficulty of attracting high-paying jobs and upscale housing developments to the area. Tax incentives could address some of these issues, but significant effort would be required to create an environment supporting the envisioned transformation.
(Hunters Point Across the Bay)
Subsequent Learning
At the Three Part Advisors Dallas conference, I met with Landsea Holdings, a homebuilder operating in the southern and western U.S. Discussing their outlook on California; they emphasized the regulatory challenges. Delays caused by regulations, such as protecting a native bird, a historic building, or an important tree, make land entitlements exceedingly slow. John Ho (CEO) noted that California once housed 11 homebuilder headquarters; now, only Lennar remains. With limited land availability, homebuilders chose states where land would be more accessible and abundant. Complaining about affordability and subsequently making it challenging to add supply seems to be at odds with each other. The positive is that the regulatory framework and timeline are unlikely to deteriorate. Maybe a new administration can improve this.
End Thoughts
Overall, I remain optimistic about the company and its stock. The cash flow over the next five years will likely be significant, enabling substantial debt reduction within 2-3 years. After Great Park, Candlestick’s progress should provide clarity on the company’s partnership structure. I trust Dan, Kim, and Mike to navigate this transition effectively.
My fair value estimate for the stock is $7.77, representing roughly 100% upside. The downside seems limited due to the strong cash flow pipeline. However, I wonder how much longer Dan Hedigan, with 40 years of experience, will stay. His patience with California’s regulatory challenges may eventually wane.
The company's near-term outlook is as clear as ever. Land sales at Great Park and Valencia will drive debt reduction, while Candlestick is nearing its first sales. With land in a tight supply market, I remain confident in the company’s trajectory.