JEANNETTE DESANTIS Contributing Reporter As head of one of the San Fernando Valley’s largest and oldest residential development firms, the Larwin Co., Michael Keston knows how cyclical the real estate market can be. During boom times, the company has built as many as 2,000 homes, but in bad years the company has been forced to retrench, building as few as 100 homes. Now that the residential real estate market is once again heating up, developers like Keston face a new obstacle: finding suitable land. “In some ways we have to be like gypsies and go wherever there is land,” said the 59-year-old chairman and chief executive officer of Larwin, which had revenues of $105 million last year. Keston, who was originally hired as an assistant to Larwin founder Larry Weinberg in 1970, analyzes statistics and information from a range of different sources, including his own children, to pinpoint where these new real estate hotspots are going to be. Then he buys raw land. In the past, Keston has built large subdivisions throughout the San Fernando Valley. But with available land at such a premium, most of his current efforts are taking place farther afield, in places like Ventura County and the Santa Clarita Valley. Question: The residential real estate market really seems to be picking up strength these days. Answer: The market is very strong in Southern California, but it is still very spotty. For example, in the coastal Orange County market, prices are probably increasing by 10 percent to 20 percent per year right now. Other strong markets are in Corona, Temecula, the Santa Clarita Valley. There, prices are just starting to increase, to maybe 8 percent to 10 percent. Whereas in the Antelope Valley and places in the Inland Empire, prices are flat and will only increase by a few percent this year. Q: What makes one market stronger than another? A: Two things. One is job growth, and we are getting tremendous job growth in California; and second is desirability where do people want to live and how close is it to where the jobs are being created? The population in the Santa Clarita Valley and Northern L.A. County, including the Antelope Valley, was projected to increase by 169 percent in the coming years. Our job is to provide housing for people. So we look to purchase properties in those areas so that we can meet the demand. The difficulty is that there is a very strong environmental movement afoot which limits the number of lots that can be produced. There are transportation issues and now there are more issues such as water availability. But most analysts will tell you that supply is 50 percent of what it should be to meet demand and that means a marked increase in the price of homes. Q: Is that good for developers? A: Well, it is not good for the general economy. Since it is so hard to find properties, a developer has to pay 25 percent to 50 percent more for the same lots, so the increase in price is not necessarily good for the developers. What we are really doing is passing on the costs of growth restrictions caused by the issues of the lack of water, transportation and lack of approvals. Q: In what way does the market dictate the types of projects Larwin undertakes? A: Our company generally does not produce entry-level homes because the prices are too low and the risk is too high for the small level of profit margin. We are mostly looking for first-, second-, and third-time move-up buyers. Our product ranges from $200,000 to $350,000 primarily. In a market like this, you tend to build the higher-priced homes. When the recession was on in the late ’80s and early ’90s, as a private company, we just stopped building. Public companies had to continue to build so they could continue to report sales and earnings. But private companies just pulled in all their resources like a turtle and stopped building. That doesn’t mean we stopped entirely, but we scaled down. We built about 100 homes a year during the recession, which is not on the magnitude that we would normally build. We would generally build 350 to 400 homes a year, which represents about $100 million in revenues. That is where we are now and this is a good year. Q: What areas are most promising for you at this point? A: The strongest area of the market is Ventura County. Thousand Oaks, Moorpark, Simi Valley are very strong, even Camarillo. When you get to Oxnard and Ventura, it is not as strong. In the western part of Los Angeles city, including the San Fernando Valley, there just isn’t much available land to build upon. So as developers, we just keep going farther out where we can find property that is available. And I normally listen to my kids, because the younger ones really know what is happening before it happens. Today, young people are more interested in the quality of life and they are willing to drive a little bit farther. They are more interested in school districts. Q: Have developers had trouble finding land in Los Angeles for some time? A: For at least the last six years. What is being built in the (San Fernando) Valley is a lot of attached housing, like townhouses or 10 to 15 homes to one acre. We do detached homes, on separate lots, and there is even less availability of that type of land. We generally build from 50 to 500 homes in a subdivision and in some places, like our recent subdivision in the Santa Clarita Valley, we built 1,200 homes in the Castaic area. We are not a custom builder who builds one or two at a time; we build in subdivisions. There is still land in the Valley, but it is very limited, 10 lots here, 40 lots there. There are projects in the Valley like Porter Ranch, where building is already approved and many homes will be built over many years. But the owner of that property is not selling the property to anyone else and is building it himself. In L.A. city, things are already built out. The only way to build more would be to change the city’s General Plan and the places to change it are in the hillside areas, where they are very opposed to changing anything. Q: Is it more difficult to obtain approvals in the city of Los Angeles? A: We find it much harder in the city. We used to build a lot of homes in Chatsworth and the process is normally two to three times longer and more expensive in the city than in the county of Los Angeles and the outlying cities. It is the complexity as well as the times and the fees. It is the process, the different levels of government that have to approve various steps along the way, that is the problem. That is what happens with older cities there is one law on top of another and by the time you get to the end, it strangles you.