POMONA, CA—Private local investor and developer Tom Y. Lee has purchased a 7.5-acre parcel in Pomona, CA, that he plans to entitle for a 100-plus townhome community. Located at 2887 Towne Avenue and 700 East Harrison, the site houses two industrial buildings that total 100,000 square feet. Lee purchased the land site for $10 million from an unnamed seller.

“The buyer saw this is an opportunity to entitle the site for the development of a large number of individual townhomes in a growing locale,” Ramu Sunkara, a broker at Sperry Van Ness, tells GlobeSt.com. “At the time we presented the buyer the opportunity, he was involved in a smaller residential development deal that experienced a dramatic rise in home demand. Encouraged by that, the buyer felt Pomona offered a similar opportunity especially given that the site borders the prestigious Claremont community.” Sunkara represented the buyer and the seller in the transaction, along with his twin brother, Sperry Van Ness broker Kanna Sunkara.

The property has an interesting history. The seller of the property is a long-term client of the Sunkara brothers, and had previously sold 700 East Harrison to an owner-operator, who eventually foreclosed on the building. The seller reclaimed the property, and the Sunkara brothers saw an opportunity to market the two adjacent parcels together as a development site. “Immediately, we reached out to Tom Lee, a sophisticated developer, who agreed the site was ideal for repositioning as demand for residential development in this area was accelerating,” Kanna Sunkara tells GlobeSt.com. “We believed that was a crucial strategy in making what could have been an extremely complex and challenging transaction a fairly smooth and straight forward one.”

To ensure that Lee would be able to obtain entitlements, the Sunkara brothers opted for a lengthy entitlement process of one year, which eventually turned into an 18-month closing period. “We got the buyer to take on some entitlement-risk and go non-contingent early in the transaction and convinced the seller to grant the buyer the requisite time to obtain all entitlements,” says Kanna Sunkara. “We ran into several other unforeseen events, such as a change of planning department employees in the city of Pomona and delays in scheduled city hearings, but further escrow extensions were negotiated to accommodate the buyer's and seller's requirements.”

Although an industrial development currently sits on the site, the immediate surrounding area is all residential housing—and Kanna Sunkara says that the demand for housing is very strong, especially in the sub-$500,000 range. “The median home value in Pomona is $333,400 and housing prices have risen 8.6% over the past year,” he says. “Zillow predicts prices will rise another 3.0% within the next year. The median list price per square foot in Pomona is $243, which is lower than the Los Angeles Metro average of $347 and the median price of homes currently listed in Pomona is $329,900 while the median price of homes that sold is $303,150. The median rent price in Pomona is $1,500, which is lower than the Los Angeles Metro median of $2,195.”

According to David Rich, the managing director at Sperry Van Ness, this sale is part of a larger trend in the market, where investors are finding opportunities and higher yields in secondary markets. “This sale is pretty consistent with what we've been seeing over the past 24 months,” Rich tells GlobeSt.com. “Investors are finding little inventory in primary markets like Los Angeles. Consistent with this lack of inventory in primary markets, higher land costs and lower return are causing capital to spill over to secondary and tertiary markets where deals are more abundant and returns are higher. Markets like Pomona are benefitting from this trend. The same scenario is playing out in the residential sector where homebuyers, unable to afford housing in the L.A. Metro area, are migrating to outlying areas with fewer supply/demand imbalances.”

Townhome developments also seem to be on the rise as an answer to pricier single-family homes. Several developers have announced townhome developments throughout the L.A. area, in secondary and tertiary markets like Oxnard, Glendora and Norwalk.