Codes and Costs

"Residential neighborhoods at the fringe of urban centers frequently include detached home conversions, with the front half of the home showing as a business while the rear is residential," notes Bassenian/Lagoni's Dave Kosco, Front Street's lead architect. "But these are ex post facto and case by case."

Kosco says Orange County building and safety officials approached the issues from a worst-case scenario perspective, leaning toward conservative interpretations of the Uniform Building Code. "On the upside, the hard cost for the work component is relatively inexpensive in relation to the living component," he says. "That helped offset some of the incurred cost that the commercial component added."

Still, Ralph Spargo of Standard Pacific reports an approximate hike of 5% in overall hard costs, with extra expenses related to fire codes and access, wall thickness, setbacks and other commercial-use criteria. "We were able to absorb these costs with our pricing, and we can now identify possible snags upfront," he says. "My hope is that building codes statewide will eventually offer a new code definition for this type of enterprise."

Rancho Mission Viejo did make a land price concession to Standard Pacific to help offset the risk of introducing an unproven product type. "We did not expect to get 100% of the land value for this particular project," says Paul Johnson of the master planner and developer. "As a company that strives to benchmark new ideas, we know we cannot always garner 100% with our first efforts, and we accept that in return for higher payoff potential with future projects of this type."

Buyer response to Front Street has validated the designs and rewarded the players. Homes have sold quickly and captured the buyers that the new zoning anticipated, a major plus for a risky trip into uncharted territory. "At least 19 of the 22 homes here have existing businesses, and we've been told that the remaining three buyers are preparing for business use," Spargo says. "We are seeing mortgage brokers, attorneys, CPAs, Realtors and a magazine publisher."