Bloomberg News

Irvine Co.’s Bren Says Master-plan Cities Not Feasible

October 28, 2011

(Corrects Bren’s characterization of Rouse in eighth paragraph and the company’s community in 10th paragraph of Oct. 27 story.)

Oct. 27 (Bloomberg) -- Government regulation and the lack of patient capital make it unlikely a major, new master-planned community could succeed in the U.S., said Donald Bren, chairman of Irvine Co.

“I’m not sure that a major community development is a predictable business,” Bren, 79, said today during a talk at the Urban Land Institute conference in Los Angeles. “Government regulations and environmental restrictions have become so overwhelming for large-scale projects that they’re not feasible.”

Planned in the 1960s, Irvine Ranch in Orange County, California, is home to about 290,000 residents, 280,000 jobs, the University of California, Irvine, and the headquarters of Broadcom Corp. More than 50,000 of the community’s 93,000 acres (38,000 hectares) are preserved as open space.

At a time when U.S. homebuilders are struggling to find buyers, Irvine Co. has sold 1,755 new houses since Jan. 1, 2010, when it returned to building rather than selling land to outside developers. Work started on 614 houses in the first half of the year, making Irvine Ranch the fourth-most-active master-planned community in the U.S., according to Houston-based MetroStudy, which tracks homebuilding in 80 metropolitan areas.

Irvine Co. has flourished as a developer because it has no debt on its land and no outside investors demanding quarterly dividends or other rapid returns on their money, Bren said.

“Time was our friend,” said Bren, the world’s 64th wealthiest man with a fortune estimated at $12 billion, according to Forbes magazine. “I’m convinced large-scale development has to be done in a private environment.”

Successful Mix

Irvine Ranch, which has enough undeveloped land to last 20 more years, succeeded as a planned community because of its mix of housing, jobs and educational, cultural and outdoor facilities, Bren said. As important is its location, near Pacific coast between Los Angeles and San Diego, he said.

Another community developer, Rouse Co., made most of its money from shopping centers rather than master-planned projects, Bren said.

“It all comes down to acquisition funding,” said Bren, who invested in Irvine Co. in 1977, became its chairman in 1983 and sole shareholder in 1996. “There was very little patience to do the planning properly and move the community along at a proper pace.”

Rouse, the developer of Columbia, Maryland, was bought by General Growth Properties Inc. in 2004.

New-Home Sales

Developers have struggled to sell new homes as foreclosures drive down prices of existing properties and an unemployment rate above 9 percent weakens consumer confidence. New houses sold at an annual pace of 313,000 in September, the Commerce Department reported yesterday. An estimated 323,000 new homes sold in 2010, the fewest since the government began collecting the data in 1963.

Irvine Co.’s real estate investment portfolio exceeds 96 million square feet (8.8 million square meters) and includes 480 office buildings, 41 retail centers, 125 apartment communities, three hotels, five marinas and three golf clubs.

In December, the company paid $625 million for the Hyatt Center, a 48-story office tower in downtown Chicago, a departure for the company that tends to focus on its home state.

“We understand California, in and out of Irvine,” Bren said. “I am provincial. The company is provincial.”

--Editors: Christine Maurus, Daniel Taub

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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