How did Mr. Donald Bren buy, manage, and expand the company that made him the wealthiest real estate investor in the world? Pike Oliver and Michael Stockstill, authors of Transforming the Irvine Ranch book, share their knowledge.
Tell us a little bit about yourselves.
Pike Oliver: I started as an urban planner, got a degree from UCLA half a century ago, and spent some time in the realm of public policy, but very shortly found my way to working at the Irvine company in the late 1970s just after the James Irvine Foundation had sold it, which is a topic that's addressed in some detail in our book, and spent about 8 years there in various roles mainly on strategic planning, implementing settlements to litigation, and working on funding infrastructure in the years following the passage of Proposition 13. Looking back, it was one of the most energizing and exciting work experiences I've had in my long career.
Michael Stockstill: I started as a journalist, and joined the Irvine company on the public relations side. During the 13 years, I was there doing much political work. We had advocates in Washington, DC, and in Sacramento that I worked with, and the company had a leadership role three times in passing, trying to pass, and finally passing an initiative in Orange County to fund transportation. I left after 13 years, did a variety of public affairs-type jobs, finished as a consultant and am now retired.
You both participated in writing a book called Transforming the Irvine Ranch, which one of the heiresses, Joan Irvine, also participated in, how did you get to write a book and what was the reasoning behind it?
Michael: We've always loved history when we were together at the Irvine company. We looked around and asked questions about the background of the company, we read the book, and we talked to other people who had lived it. Fast forward 40 years after talking about it many times, Pike called me one day and said, "Why don't we write that book." And as we set out a week later, COVID hit so we had a lot of time on our hands and we set out to do the research, and talk to people we knew who had lived it. Fortunately, we got a lot of folks, these were all people in their 80s, some of them in their 90s. Ray Watson had written six chapters, and he gave a 500-page oral history. With that as a base, we set out to write the book and had a great time doing it.
Pike: The people that we met were people who had worked in the formative years of the transformation that we write about in our book, when the "big plan" got going, when the University of California Irvine came to the Irvine Ranch, which is a significant marker in the history of its transformation. We interviewed 43 of these folks who were in their 80s, and 90s. We started this 4 years ago, 7 of them have since passed on and it was a just in time carpe diem effort. Mike had talked about doing this for decades and when I called him, "Mike, we're not getting any younger, and all these folks are not getting any younger, if we're going to get the story, told, it's time to do it." That was the motivating factor, and as Mike says, it was a very energizing and exciting experience to do it.
I would love to: 1) try to get into Bren's brain and understand how he got himself into the Irvine company from your perspective and 2) touch on the biggest problems you have worked on. How did you deal with them? What did it take to own the company entirely since he didn't own it 100% at first?
Michael: Donald Bren had an interest in planned communities as a young man and as a builder. He started his own building company in his late 20s. He was 31 years old when he and some partners purchased 11,000 acres of what is now Mission Viejo, which is south of the Irvine Ranch. If you read the oral histories from that time, you see that Bren is very interested in whole communities, he's interested in design. Unfortunately, that was a bridge too far. Bren sold out after 3 years and eventually, Mission Viejo was bought by Philip Morris, they had deep pockets. But his interest never lagged, he kept his eye on the Irvine Ranch, and he built houses on the ranch. In 1976, it became apparent that the ranch was going to go up for sale. Bren rounded up $100 million, he was prepared to join the bidding, and it very quickly exceeded that. He was invited into the winning group, which was headed by Alfred Taubman from Detroit and included Joan Irvine. In 1977, he owned 35% of the Irvine Company. But he did not have control and the other owners rallied around Al Taubman. And Taubman, for the next five years, became the real force in terms of decision making at the ranch.
Pike: Al Taubman was a major force in the world of shopping center development and was based out of Michigan. He didn't have a background in large-scale planned community development, especially in the context of all the planning and regulatory issues that were becoming so challenging in California. And many of those emerged in the years following the acquisition. There were different views on how to proceed with those. The long and the short of it is that about six years later, probably influenced somewhat by some funding challenges that the Taubman company was facing, Donald Bren figured out, and got word that Mr. Taubman might be interested in liquidating his investment. He put together what was essentially a leveraged buyout of the Irvine Company and got Joan Irvine to agree to be bought out, although an important footnote there is she did not agree on the price. The price for her shares was litigated over the following six years, and then ultimately resolved in terms of interest and all that she would be paid in the early 90s. In 1983, Donald Bren had full control of the company and was the decision maker for how to proceed, which was a fascinating time to be there, a lot of things accelerated, working out issues and meeting challenges with transportation funding, as well as some other issues associated with residential leaseholds that had been in place for several decades and were coming up for renewal.
Michael: It's really important to look back from 1983, back to 1960, which is the portion of our book that we talked about, just the amazing things that happened on the Irvine Ranch in a relatively short period. And when you think about what was going on, Orange County was growing rapidly because of postwar development, there was a big employment base for aerospace, and the Irvine Company'a magic of planning. Planning was celebrated at that time, they were important people and the idea of building a new community around the university on 93,000 acres of land that was essentially a farm was captivating to a lot of people. There was a lot of public support, there was enthusiasm for this to happen. As time went by, with changes in the law and changes in attitudes, it was a very different world that the new owners faced in 1977. And when Bren bought and took control in 1983, it was a very different world. He had a lot of challenges to face, not the least of which was bringing a new company under his leadership and Bren was not then and is not now a real public man. He wasn't a guy who went out and met all the community leaders, he tended to be very private. A very different world from 1983 to 1960.
After he acquired this percentage, what did it take to get the rest?
Pike: The company was sold in 1977 for $337 million. The buyout that occurred in 1983 put the valuation at around a billion, and the immediate payout was about half a billion, Joan Irvine Smith's payout occurred later. There was quite a value increase in those six years. Probably you could say that, even though people were amazed at the figure for 1977's purchase, in my view, it was probably a bit of a steal. And that reflected the fact that it was so very hard for people to value what all this land would be worth. There were many uncertainties you couldn't work. As one person we interviewed said, "There are no comps." This is not a typical real estate valuation exercise where you assemble a series of properties, look at what the rents are, go through the three different approaches to valuation, this was not that. There was a great increase in value but at the same time, the challenges that Mike mentioned with transportation and other issues were formidable.
What shapes Mr. Bren’s focus is an incredibly broad bandwidth of perspective, as compared to most people involved in real estate. For example, he will spend quite a bit of time looking at a site plan and making sure the houses next to each other do not allow people to look in the other person's house. Then, he can look at the entire ranch to figure out the purpose and intent, and begin to think about how to implement open space and habitat preserves that amount to over 50,000 acres. There are very few people that can work across that dimension of detail.
Michael: The other element of this was Bren surrounded himself by very energetic people. They were well paid, they were motivated and, as Pike and I experienced, when things needed to be done, the usual response was: "We'll figure out how to get it done, and tell us the resources that you need to make that happen." The Irvine Company never had a lobbyist in Washington DC, we ended up hiring somebody there and it made a tremendous difference in some of the issues that we had to deal with at the time. Bren was very willing to spend resources, he was not a spendthrift, there were budgets, but it was a huge property, it was a huge job.
When you have 93,000 acres in four or five different jurisdictions, you can choose to move your emphasis from place to place, depending on what the political realities were. In the city of Newport Beach, as time went on, there was a much greater resistance to continuing development, they were very strong anti-growth groups in the city of Irvine. In Laguna Beach, there was a lot of resistance, but then in the city of Tustin, a vast commercial development was welcomed with open arms. We equated it in our book to say it's like playing poker, you have three decks of cards, and your opponent has one. With a lot of land, a lot of flexibility, and a willingness to be creative, you can do that and Bren realized that.
Pike: Another factor that is important, from a real estate perspective, to understand is when the initial planning for the transformation of the ranch got underway in the early 60s, there was not a lot of income, there was agriculture, but it wasn't generating tremendous cash flow. But the positive element was there was no debt on the property, which is unusual in the world of master planning community development. The population of Orange County in 1960 was around 700,000 and by 1970, it had doubled to 1,400,000. There was and incredible growth and when combined with the lack of debt, it helped. Brent bought out the other partners, essentially doing a leveraged buyout and using all the revenue from the income properties that had been developed to fund the payoff to the other partners. His timing was good, if he had done it a few years later, it might not have worked out so well given the cycles in the economy, but he was able to pay down a lot of his acquisition financing very quickly. That puts the company in a great position to be able to take the long view. When you combine that with his long-term perspective, and the ability to implement a long-term perspective, that contributes a lot to the success of the ranch. If there was someone who was trying to prevent something from happening, the company could just sit back, work it out and strategize, and then come back and deal with things a few years later.
It began in the 60s with the work on the big plan and all that and carried through the sale of the company and into later years. One of the things we talk about in the book is how the group that was assembled to work on the big plan and implement it was a relatively young crowd. They were in their 20s. The oldest gentleman was Bill Mason, who later became president, he was 41 years old when he came to work for the company, everybody else was younger. They were smart people, these are guys that had strong educational backgrounds, not a lot of experience, some experience, and they didn't know what they couldn't do and they figured it out. That attitude carried forward into the period when Mike and I were there and, in the years beyond. It was a situation where you had smart people and they were just told to go do it.
Michael: When you think about the kind of menu of things that was available to the Irvine Company and to Mr. Bren, it was the presence of the University of California. As time has gone on, the fact that the university is there has provided an enormous foundation of excellence for growth. Daniel Patrick Moynihan said, "If you want a great city, build the university and wait 200 years." In the case of Irvine, they built a great university, and just 50 years later, you see what has happened. Bren realized this, he made very strong overtures to the university to foreign partnership and we see that today at the University Research Park, which is a joint venture of the Irvine Company and the university. It's something that is now at my last reckoning, providing about $7 million a year in revenue directly to the university. And in about 45 years from now, all the buildings that are built on university property will be deeded to the university. Pike estimates it to be worth 250 to $300 million. It'll be the largest donation to the University of California in history. Seeing what the university brought, both in terms of people, other resources, and the fact that it's there, based on our research, we owe a lot of that to Joan Irvine Smith, who was on the board of directors of the Irvine Company at the time, she was the granddaughter of the founder of the ranch, James Irvine II. It was Joan's leadership, convincing the other people there and family members that the university should be built there, is a great legacy for her.
Pike: When I first came to work at the company, I was a little unsure as to what the significance of the university was to the program that was being implemented. I knew that it had kicked off the planning, but now I understand that the university put the Irvine Ranch on the map. It's a big property, but people really didn't know that it existed and many people still really don't know the magnitude of it, but they know where UC Irvine is. It put it on the map and in the later years it really became an attraction, a magnet for creative industries, and what's going on now with bioscience and all in that area is driven in large part by the university.
Mike is right about the value of the joint venture. I just did a rough present value calculation on what's out there now and came up with about a third of a billion dollars of value to the university in that park. It's quite phenomenal. That's another element of Donald Bren's broad bandwidth in figuring out how to do things and how to create value, and create enthusiasm and energy that goes way beyond a single real estate investor and extends out into the broader community.
Pike Oliver
pike@urbanexus.com
Michael Stockstill
stockstill49@gmail.com