We continue our education of the history of The Irvine Company, picking up where we left of  in the 1980's through 2013. Excerpts from the book: The Irvine Ranch: a Time for People" by Martin A. Brower.

See Part 1 here
See Part 2 here


About 4,000 residential ground leases made over a 15-year period were coming up for renewal. The new rent, set at 5, 6, or 7% of the fair market value of the land, had been written so that rent would remain flat for an original 20 or 25 years. At expiration, the Company could charge 5, 6, or 7% of the new fair market value, but few foresaw how steeply land values would rise during the two decades. The residents created a Committee of 4000 to ask the company to discard the leases they had signed and to obtain more favorable conditions. They secured extensive news media coverage, took advertisements, held mass rallies, and won favorable community support, and as a result, the Company’s credibility plummeted.

The nearly 4,000 leased residential parcels were actually a poor investment, returning from 5 to 7% of their 1950s, 60s, and early 70s land values. The Company made the Committee of 4,000 a new offer. The leaseholders could buy their land at an average of 50% of its appraised market value, and because interest rates were high, the Company would permit homeowners to pay for the land over a 30-year period with a variable-rate loan beginning at 10% - an acceptable interest rate in the mid-1980s. Community Development vice president Dick Sim, working long hours with Latham & Watkins attorney Robert Curry, ironed out the details, and the offer was accepted in May 1983. The lawsuit was dropped, and the Committee of 4,000 became salespeople for the plan. Nearly all of the remaining leaseholders purchased their homesites, ending the controversy on a note of appreciation for Nielsen and Bren - and introducing a high stream of income from the payments and interest. The owner of a typical, small, non-view lot who was paying the Company $400 a year in rent with no adjustment until 1997 - for example - was now paying the company more than $400 a month.

How brilliant is it that first the undeveloped land has, say, a value of $25,000 per lot? You develop the entire area into a great community and have them lease your land long term. And because you have developed the community, the value of the land automatically increases. And now you get to reap the benefits by selling the land to them at a much higher price than the non-developed price.

To strengthen the community’s feelings about the Company, Bren — with input and guidance from his close aide and confidant Gary Hunt — began contributing sizable sums of money to worthy causes. In some cases, one-time individual contributions were even larger than the Company — long-known for its community support — previously had contributed during a full year. A major recipient was the University of California, Irvine, identified as a key factor in Orange County’s future. Included was a $1 million personal donation by Bren for a new arena named the Bren Activities Center.

Architects he worked with:
Not satisfied with the work of the architects for the first two 12-story towers in Jamboree Center, Bren used the Skidmore firm for the next three 15-story towers in Jamboree Center.

Hotel architects were recommended by the hotels: HNTB for the Hilton and Wimberly Allison Tong & Goo for the Four Seasons. Whereas Woodbridge was given twin lakes as a centerpiece, the Tustin Ranch was centered on a 160-acre golf course, a great recreational attraction for Tustin and a major plus in the community’s gaining entitlement from the City. Tustin Marketplace, the 77-acre center combined big-box promotional retailers with an entertainment center including cinemas, restaurants, and a bookstore.

The Irvine Company had eased through numerous national economic recessions during the development years without significant concern. The recessions of 1973-74 and 1982-83 slowed the sale of homes and industrial land and the leasing of office, retail, and industrial space. But the County and the Company felt these recessions later than the rest of the nation, lighter than the rest of the nation, and emerged from the recessions sooner than the rest of the nation. However, the recession beginning in 1990 and continuing well into 1994 hit the nation, Southern California, and Orange County in several strategic industries simultaneously. At the same time, real estate financing sources — suffering from overbuilding in the 1980s and the deep recession in the early 1990s — withdrew support from real estate.

Despite this, The Irvine Company — with its property portfolio of more than five million square feet each of office, industrial, and retail facilities and more than 10,000 apartment units — and with ownership of a remaining 60,000 acres of land, reported positive cash flow and strong credit lines. The Company’s survival strategy included reducing employees to 200; selling its cable television operations; converting several apartment complexes to condominiums; and offering for sale previously leased-only commercial sites. The Company also began inviting onto the Ranch homebuilders who might not have been considered during better times but who could now close escrows for land and returned to single-family residential development using fee homebuilders — specifically Bren’s homebuilding company renamed California Pacific so as not to carry Bren’s name. Financing for these homes was then accomplished through the Company’s own financial strength. Cash flow was strong enough during the height of the recession in 1992 that the Company’s lines of bank credit were extended, and the Company repaid within one year more than half of a loan taken to pay Joan Irvine Smith for her portion of the Company’s stock.

Entitlement — the zoning of land by municipal agencies so that it can be developed — appears no longer to be a problem as a series of agreements with the City of Irvine regarding open space and execution by the City of Newport Beach of a general plan permit continued development within limits.

Irvine Apartment Communities, Inc., the real estate investment trust formed during the years when financing was scarce, is no more. Bren bought back all of the outstanding stock in the formerly public apartment complex REIT, strongly preferring not to have any part of the Company be public. Gone too is any talk of future REITS. Financing? Much of the Company’s development and acquisitions are financed with internal cash flow.

As of this writing, The Irvine Company’s development holdings on the Ranch include 95 million square feet of investment properties including 40 million square feet of office space in 484 high-rise, mid-rise, and low-rise buildings; 8.4 million square feet of retail space in 41 regional and neighborhood centers; over 100 apartment complexes totaling 44,000 units; three hotels, three golf courses, and five marinas.

Key takeaways:

  • Donate land to create a university or anything that will attract a lot of people to live in the area, build around it.
  • Donate a lot to the community to help your company have a good public image.
  • There were many trials and tribulations, even when the city entitled something; some activists were able to reverse that.
  • They went through all economic cycles. They very rarely, if ever, sell, which is something I fully believe and agree with.
  • I heard from someone familiar with being a tenant that they are very strict landlords; you can’t have one thing out of place.
  • I personally looked at some of their multifamily apartments, and they are very well run.
  • He is very particular about how things look; he would remove trees that looked “old school” and put palm trees to make a certain area look better, and now I notice that every shopping center he owns has palm trees.
  • He made his execs work very hard; I met someone here that knew one of his VPs, and when this VP was taking a vacation, Bren made him come back to work due to a problem, and it turned out that the problem wasn’t that big of a deal. To me, what that says is that the VPs were highly paid, and also that we all need to resolve an issue very quickly when it arises at that level, or at any level, in my opinion. Don’t ever let things linger.
  • Nothing lasts forever; if you made a mistake on one thing here, you fix it for the next one.

Key takeaways on purchasing The Irvine Company:

  • Be where the people are, go to the events that they go to, be in front of them. One of the partners that Bren had was at a horse show, he ran into an Irvine Company family member, and that started the conversation of “has the ranch been sold yet,” which led to this person partnering up with multiple people, including Bren, to make the initial 50% purchase.
  • Talk to the people who will get the deal done, in this case, they contacted the same lender. Bren always worked with the top people in the industry, whether they were CPAs, attorneys, lenders. Always go to the top for a significant opportunity.
  • Get the seller what they want, in this case, one of the heiresses, Joann, to be a 10% stakeholder on that initial purchase.
  • Corporations have a target number they will stop bidding at; this one was just under 20x of annual earnings, this one 3 million below the 20x annual earnings.