When a prime piece of property dotted with 100-year-old oak trees came up for sale in coastal Orange County, Calif., five years ago, it was a natural draw for residential developers.
But there was a catch. Since the 1980s the property, situated along a creek with rolling hills in the background, had housed a popular horse breeding and training ground, part of a complex that played host to U.S. Olympic equestrian trials. It had become a fixture in the city of San Juan Capistrano, which calls itself “the equestrian capital of the West Coast.”
Although the city’s zoning allowed about 30 homes to be built on the property, much of it still had to be set aside as open space for equestrian use.
It is a challenge many developers face in coastal California and other top-tier markets across the U.S., where there is ample demand for high-end housing but scarce amounts of land on which to build. That often prompts builders to experiment outside their comfort zones, or risk losing out on projects altogether amid local opposition.
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“There’s a negotiation that goes on, and that’s where the story has to be a good one,” said Bill Davidson, the builder who ultimately took up the challenge on the property, known locally as The Oaks. “Because the community is not going to roll over in California, just for another house to be built.”
Two developers initially showed interest in the property before him, but quickly pulled out. A broker then brought it to Mr. Davidson, a boutique builder who had a reputation for not shying away from complex historical projects in California.
In the late 1980s he found a crumbling 1920s-era mansion with a windmill in the hills of San Diego County. He refurbished the site and developed a golf-course community with 189 homes surrounding it.
When Mr. Davidson began exploring San Juan Capistrano equestrian property in 2013, he said it was the kind of land that comes along only a handful of times in a builder’s career.
“The property was beautiful. It had that traditional story. It had all those dreams built into it,” said Mr. Davidson, who owns Davidson Communities in Del Mar, Calif. “I just didn’t think I could ever finance it.”
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Having the zoning for housing was a plus, but getting the entitlements—basically, the go-ahead to build from the city—was another challenge entirely. Lenders often are wary of unentitled projects because of the uncertainty.
San Juan Capistrano has had its share of conflicts with developers in the past, and is currently fighting two major lawsuits brought on behalf of developers frustrated with project delays or denials, according to the city manager’s office.
Nonetheless, Mr. Davidson’s investors at Isles Ranch Partners saw the project’s promise and decided to take a chance.
The first task was figuring out how to merge a subdivision and an active sporting center where horses are constantly jumping over obstacles on a dirt course.
Mr. Davidson had a number of questions from the outset: What’s to prevent one of the horses from accidentally jumping into a backyard pool? Would a child jumping on a trampoline spook or distract the horses while practicing? Would the smell turn off prospective buyers?
As he talked to riders at The Oaks and others in town, he learned that backyard playtime distractions could actually be beneficial to the horses. Training the horses to concentrate is a key part of succeeding in competitive environments, where loud spectators are making noise from all directions.
To keep horses from bounding into swimming pools or kitchens, Mr. Davidson designed a moat between the houses and the nearby course. Rather than build fences that might entice trained horses to jump over them, he created a gently sloped trench to prevent horses from intruding.
To control the odor, Davidson Communities has employed a full-time grounds crew to clean the course and the stables every day. After talking with several prospective buyers who are riders and horse lovers, Mr. Davidson said he found out “that smell is like perfume. It’s intoxicating to them.”
Mr. Davidson’s final plans for the project were well-received by neighbors and city officials. He got unanimous approval from both the city’s planning commission and city council—a rarity, said councilman and former mayor Sam Allevato.
“They walked in and were able to build it with just some minor tweaks,” Mr. Allevato said.
Davidson Communities preserved and relocated 12 large oak trees and four sycamore trees, boxing up the roots and replanting them to retain the original feel of the property. They collected old barn wood and fencing to be used on the exteriors of many of the homes, which are intended to lend a farmhouse feel. Other homes were designed in a Spanish mission style, a nod to the city’s history as one of the oldest mission towns in California.
Cliff Chandler and his wife, Desiree, an active rider, weren’t quite ready to move from their home 10 miles south last year. But when Ms. Chandler was riding her horse, C.J., along the San Juan Creek Trail, she spotted the new development and couldn’t look away.
“We had to take this opportunity,” Ms. Chandler said. “This is the closest thing to having our horse in our backyard.”
Write to Chris Kirkham at chris.kirkham@wsj.com