What if Bren did not buy the Irvine Company?

H

High Gravity_IHB

New member
As you know, changes in the tax law in the early 70s forced the Irivne Foundation to sell TIC. Here's what the Irvine Ranch would have become had Bren not bought TIC:





<blockquote>By 1996, The Irvine Ranch has been auctioned off, sliced, diced, and broken into almost a thousand pieces with almost a thousand different owners. There are so many of them that there is no concern for regional issues like major traffic arterials; or the trade-offs, say, of park land in one location for entitlements in another; no concerns about having jobs close to homes, or about creating ?good? architecture; no coordination among the players because what one wins the other might lose. In short, the relevant local governments are deluged with hundreds of short-term, narrow agendas, and it?s a mess.





The Laguna Canyon Wilderness Preserve never comes into existence. Ditto the 34,000-acre Irvine Ranch Land Reserve. The Irvine Spectrum is not even a dream. The Newport Coast becomes Entitlement Lawsuit Hell. The Toll Roads are never built. Nor is Newport Hills Drive. Traffic is a disaster. Every architectural style under the sun is employed, but mostly it?s cheap because cheap is more profitable (trust me, I?m a developer, I know). The myriad developer interests are backed by so much money that competing, huge lawsuits clog courtrooms. The county of Orange, when faced with such overwhelming contradictory pressures, has the governmental equivalent of a nervous breakdown; the last employee who knew what she was doing quits in 2001 and essential services grind to a halt. Under such circumstances, the State of California is mandated to step in, and does, but it has no clue and things become even worse.</blockquote>




http://marketing.irvinecompany.com/corporate/articles/different_reality.htm
 
Speaking of weird proposals for the Irvine Ranch, many years ago I was at a private gathering dealing with the history of the IR.



During a presentation relating to early devlopement plans it was stated that one was to bring giant earth moving equipmet from Europe to level the area from PCH to the 405.



I believe this was in the late 60's or early 70's. The idea was to make it easy to develope like Garden Grove and Huntington Beach were at that time.



Back then there was no premium for views or ocean proximity. Can you believe what a shame that would have been? Not to mention waste of a gazillion dollars worth of premimums.



This was before Don Bren was involved of course.



Maybe Graph or bkspr can add to that or possibly they have additional history about the Ranch at that time. At the time of the presentation I was involved with a public company purschasing lots and it was a very interesting presentation from the time Irvine and the Floods had purchased the area for cattle grazing.



Enjoy!
 
[quote author="High Gravity" date=1226033469]As you know, changes in the tax law in the early 70s forced the Irivne Foundation to sell TIC. Here's what the Irvine Ranch would have become had Bren not bought TIC:





<blockquote>By 1996, The Irvine Ranch has been auctioned off, sliced, diced, and broken into almost a thousand pieces with almost a thousand different owners. There are so many of them that there is no concern for regional issues like major traffic arterials; or the trade-offs, say, of park land in one location for entitlements in another; no concerns about having jobs close to homes, or about creating ?good? architecture; no coordination among the players because what one wins the other might lose. In short, the relevant local governments are deluged with hundreds of short-term, narrow agendas, and it?s a mess.





The Laguna Canyon Wilderness Preserve never comes into existence. Ditto the 34,000-acre Irvine Ranch Land Reserve. The Irvine Spectrum is not even a dream. The Newport Coast becomes Entitlement Lawsuit Hell. The Toll Roads are never built. Nor is Newport Hills Drive. Traffic is a disaster. Every architectural style under the sun is employed, but mostly it?s cheap because cheap is more profitable (trust me, I?m a developer, I know). The myriad developer interests are backed by so much money that competing, huge lawsuits clog courtrooms. The county of Orange, when faced with such overwhelming contradictory pressures, has the governmental equivalent of a nervous breakdown; the last employee who knew what she was doing quits in 2001 and essential services grind to a halt. Under such circumstances, the State of California is mandated to step in, and does, but it has no clue and things become even worse.</blockquote>




http://marketing.irvinecompany.com/corporate/articles/different_reality.htm</blockquote>


I guess this alternate reality justifies their monopolistic behavior.
 
I don't think you can accuse TIC of being a monoply or guitly of monopolistic behavior. TIC or IAC doesn't control enough lots or units to manipulate the market. They can try to influence pricing through marketing and phased releases, but as is obviously apparent now, they are still subject to market forces. It's nearly impossible for any corporation or landowner in the U.S. to have a monopoly on land and thereby influence rents, high home costs drive out workforce, lack of workforce drives out companies, demand for homes go down.



What i think you meant is "I guess this alternate reality justifies their commie, obama voting, homosexual, illegal immigrant, catholic behavior"



Yee haw brother, yee haw.



If there's any company guilty of attempting to create a "monopoly" in the home building industry, it's lennar, and, maybe they did, i haven't checked msnbc recently.
 
[quote author="jcaraway" date=1226054335]I don't think you can accuse TIC of being a monoply or guitly of monopolistic behavior. TIC or IAC doesn't control enough lots or units to manipulate the market. They can try to influence pricing through marketing and phased releases, but as is obviously apparent now, they are still subject to market forces. It's nearly impossible for any corporation or landowner in the U.S. to have a monopoly on land and thereby influence rents, high home costs drive out workforce, lack of workforce drives out companies, demand for homes go down.



What i think you meant is "I guess this alternate reality justifies their commie, obama voting, homosexual, illegal immigrant, catholic behavior"



Yee haw brother, yee haw.



If there's any company guilty of attempting to create a "monopoly" in the home building industry, it's lennar, and, maybe they did, i haven't checked msnbc recently.</blockquote>


They do control enough of the lots to control the market. It is very difficult to have a monopoly, but TIC is as close as they get. They have decided to hold to peak land prices and not build. They have several completed communities with finished lots growing weeds. All they would have to do is decide to lower land prices to meet the market, and they would have sales again. They are not. To chose to do otherwise and completely stop all construction is clearly monopolistic behavior (actually it is an oligopoly in OC).
 
[quote author="IrvineRenter" date=1226055584]



They do control enough of the lots to control the market. It is very difficult to have a monopoly, but TIC is as close as they get. They have decided to hold to peak land prices and not build. They have several completed communities with finished lots growing weeds. All they would have to do is decide to lower land prices to meet the market, and they would have sales again. They are not. To chose to do otherwise and completely stop all construction is clearly monopolistic behavior (actually it is an oligopoly in OC).</blockquote>


Do you think they?ll blink or can they afford to hold fast thru the downturn?
 
Don't they have a quota of housing units they have to meet by a certain year? I can't remember who set it...was it the State, Federal, or Local government? But I thought they have to meet a specific number of housing units by 2015 or something. Not TIC, but the City of Irvine, which then would put pressure on the TIC right?
 
[quote author="tenmagnet" date=1226106606][quote author="IrvineRenter" date=1226055584]



They do control enough of the lots to control the market. It is very difficult to have a monopoly, but TIC is as close as they get. They have decided to hold to peak land prices and not build. They have several completed communities with finished lots growing weeds. All they would have to do is decide to lower land prices to meet the market, and they would have sales again. They are not. To chose to do otherwise and completely stop all construction is clearly monopolistic behavior (actually it is an oligopoly in OC).</blockquote>


Do you think they?ll blink or can they afford to hold fast thru the downturn?</blockquote>


I think they are economically strong enough to hold the land indefinitely. They have great cashflow from their various apartment communities, and they have no debt on the land (except for the mello roos they are paying on some communities). There is little or no economic pressure for them to sell land.
 
[quote author="24inIrvine" date=1226107346]Don't they have a quota of housing units they have to meet by a certain year? I can't remember who set it...was it the State, Federal, or Local government? But I thought they have to meet a specific number of housing units by 2015 or something. Not TIC, but the City of Irvine, which then would put pressure on the TIC right?</blockquote>


They are mandated to provide a large number of affordable housing units, but they are also contesting that in court (through their proxies at the City of Irvine). If they stop selling any new houses until they get their asking prices, they may be sitting on vacant lots for 10-20 years. At some point, there will be political pressure to deliver housing units, particularly when the only thing preventing them is the greed of the landowner.
 
I never thought I'd say this, but I think IrvineRenter is dead wrong on this one. Having a monopoly means that there is a lack of competition that enables an entity to set and GET (this is key) a price that would be significantly lower if there were normal competition. You can set any price you want but if there are no transactions, are you really a part of the market? A key characteristic of a monopoly is that the good or service they control lacks viable substitutes. Clearly new homes in Irvine do not meet this criterion.



It seems that the Irvine Company has the long term strategy that they will develop a lot of land when home prices are high and hold back when prices are low. This is a good strategy. But here's the problem; they are not executing on it. Right now home prices are very high, but they are not selling because they incorrectly believe that home prices are low. When they finally realize this they will find that they have wasted the chance to capture some great near-bubble prices.



Obviously they do have the fiancial ability to refuse to sell land for a while. However, I doubt they can do this indefinitely. The county of Orange in particular wants new homes built in Irvine and I don't think they are going to stand by patiently while Irvine Company waits for bubble prices to return.
 
[quote author="bigmoneysalsa" date=1226110928]I never thought I'd say this, but I think IrvineRenter is dead wrong on this one. Having a monopoly means that there is a lack of competition that enables an entity to set and GET (this is key) a price that would be significantly lower if there were normal competition. You can set any price you want but if there are no transactions, are you really a part of the market? A key characteristic of a monopoly is that the good or service they control lacks viable substitutes. Clearly new homes in Irvine do not meet this criterion.



It seems that the Irvine Company has the long term strategy that they will develop a lot of land when home prices are high and hold back when prices are low. This is a good strategy. But here's the problem; they are not executing on it. Right now home prices are very high, but they are not selling because they incorrectly believe that home prices are low. When they finally realize this they will find that they have wasted the chance to capture some great near-bubble prices.



Obviously they do have the fiancial ability to refuse to sell land for a while. However, I doubt they can do this indefinitely. The county of Orange in particular wants new homes built in Irvine and I don't think they are going to stand by patiently while Irvine Company waits for bubble prices to return.</blockquote>


Actually, I agree with you 100%. Allow me to clarify: they are acting like a monopoly in that they are constricting supply to force prices higher than they would get in a more competitive market, <em>they are just to high for the market right now</em>. They are behaving like a monopoly, they just are not executing it very well right now. If they succeed in what they are doing, they will probably artificially support new home prices at 10%-20% higher than the free market would allow. They will get some transaction volume at this lower price, just not very much.
 
[quote author="bigmoneysalsa" date=1226110928]The county of Orange in particular wants new homes built in Irvine and I don't think they are going to stand by patiently while Irvine Company waits for bubble prices to return.</blockquote>


I think this misjudges the cultural, political and economic forces at work. TIC is as close to a monopoly as a real estate business can hope to be, and has never presented itself as anything else. It is infinitely more powerful than the City of Irvine, and also much more powerful than the County, which has other things, like Santa Ana blight, to worry about. It is also only a few years away from outlasting all but a few of the major California homebuilders.



TIC is dug in for good - the CA median could go under 100K, the OC median could go under 150K, and they would still keep on chugging along without selling a single acre that they don't want to sell.
 
[quote author="Hormiguero" date=1226113611][quote author="bigmoneysalsa" date=1226110928]The county of Orange in particular wants new homes built in Irvine and I don't think they are going to stand by patiently while Irvine Company waits for bubble prices to return.</blockquote>


I think this misjudges the cultural, political and economic forces at work.</blockquote>


Maybe. I'm no expert. Why do you think they are more powerful than the county? Serious question.





[quote author="Hormiguero" date=1226113611]TIC is as close to a monopoly as a real estate business can hope to be</blockquote>


Granted. But they are nowhere close to being a monopoly. Seriously. If you don't get this you have a pretty serious misunderstanding of what the word "monopoly" means. As to digging in, the point I wanted to make is that even if they can it is not in their interests to do so. They are hurting themselves by not selling land now.
 
[quote author="IrvineRenter" date=1226055584]



They do control enough of the lots to control the market. It is very difficult to have a monopoly, but TIC is as close as they get. They have decided to hold to peak land prices and not build. They have several completed communities with finished lots growing weeds. All they would have to do is decide to lower land prices to meet the market, and they would have sales again. They are not. To chose to do otherwise and completely stop all construction is clearly monopolistic behavior (actually it is an oligopoly in OC).</blockquote>


Its true that the TIC are controlling the sale of houses on their land, but they can't be waiting for the house prices to peak. The house prices will never peak as high as it has. If they wanted peak value for their land then they should have built more houses in the past year and tried to see them for as high a profit as possible. When the TIC do start selling houses again they will make profits but not like they have seen in the past few years. There must be other reasons why TIC are not selling houses and it is not for the quick buck. I suspect it is a long term goal to keep house prices in Irvine higher than their surrounding neighbours and not to profit in the short term from peak land prices.
 
[quote author="bigmoneysalsa" date=1226114540]Why do you think they are more powerful than the county? Serious question.

</blockquote>


It is pretty silly to compare political entities with private corporations. But I don't think there's a single faceless County worker or politician who has 1/100 the juice of Bren to determine the destiny of Southern Orange County (which, not incidentally, is where all of the tax base is).



Of course, that isn't a bad thing, Irvine is, in many ways, the best managed city in California. Contrast a ride on the 73 with the 5 going through LA - the roads themselves are consistently super-smooth and attractively landscaped.



As for "hurting themselves" by not developing or selling, I disagree. Look at the public homebuilders, or big public REITs (like GGP or PLD) - they are all shadows of themselves just a year ago, while TIC still chugs along with great fundamentals and nice occupancy. Why sell into weakness when the competition is dropping like flies every day?
 
[quote author="Stuff It" date=1226125799][quote author="IrvineRenter" date=1226055584]



They do control enough of the lots to control the market. It is very difficult to have a monopoly, but TIC is as close as they get. They have decided to hold to peak land prices and not build. They have several completed communities with finished lots growing weeds. All they would have to do is decide to lower land prices to meet the market, and they would have sales again. They are not. To chose to do otherwise and completely stop all construction is clearly monopolistic behavior (actually it is an oligopoly in OC).</blockquote>


Its true that the TIC are controlling the sale of houses on their land, but they can't be waiting for the house prices to peak. The house prices will never peak as high as it has. If they wanted peak value for their land then they should have built more houses in the past year and tried to see them for as high a profit as possible. When the TIC do start selling houses again they will make profits but not like they have seen in the past few years. There must be other reasons why TIC are not selling houses and it is not for the quick buck. I suspect it is a long term goal to keep house prices in Irvine higher than their surrounding neighbours and not to profit in the short term from peak land prices.</blockquote>


I sense your surprise over their decision not to build more aggressively over the last 2 years. I don't think there is any real reason other than they simply want to get peak prices for their land. They already command a premium in Irvine, and they probably always will. It isn't the 100% premium they desire, but it is a 25% premium over surrounding communities. I believe they were simply being greedy and stupid not to build more over the last two years.
 
[quote author="Hormiguero" date=1226148241] Why sell into weakness when the competition is dropping like flies every day?</blockquote>
Because when you are selling something you want to get a high price. Prices matter; whether the market is "weak" or "strong" doesn't. Think about it. The real estate market was absolutely booming in 2001. Sales numbers were great and prices were going up fast. The real estate market was horrible in 2007. Sales were at historical lows and prices were tanking. Now if you had a house to sell today, would you rather get the 2007 price or the 2001 price?

<p>

What the Irvine Company did was look at the 2007 prices for land and decide they weren't high enough. They wanted to wait for the 2005-2006 prices to come back. Problem is they aren't coming back. Eventually they will realize this and end up selling for something a lot closer to the 2001 price. I'm not sure why anyone would consider such actions wise.
 
I wonder though...



TIC could sit on the remaining land (and it is limited now that they've deeded most of the remaining coastal and mountain land to the IRLR) for another 50 years, living off their profits from the CRE and apartments. Why do they need to sell now with such a long time horizon?
 
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