Last October, Fluor Corp. announced that it was selling its corporate headquarters and planning to develop the 162 acres surrounding the aquamarine glass structures that form a landmark along the San Diego Freeway. What wasn't disclosed at the time was Fluor's intention to turn the acreage into a massive commercial, hotel and retail complex.
That plan, which surfaced publicly last week, has sparked an unprecedented dispute in Irvine--Orange County's fastest-growing city.
Ironically, the development proposal has pitted Fluor--perhaps Irvine's leading corporate citizen--against a decidedly pro-growth city government.
Fluor, an international engineering and construction concern and the county's largest publicly held company, also finds itself at odds with Irvine's two biggest developers--the Irvine Co. and Koll Co., according to some city officials and business leaders. On most other matters, the three companies traditionally have been close allies.
"The characteristically unified front that the Irvine business community generally presents is falling apart here," said one local businessman who asked not to be identified.
The stakes are high. For the struggling Fluor Corp., the development is critical to its financial future. Meanwhile, other Irvine companies are waiting to see how the dispute is resolved before they can go ahead with their own commercial development projects. And whatever the outcome, Irvine's evolution from a residential and industrial area to an urban center will be affected.
At issue is whether Fluor has the right to build a speculative commercial development surrounding its corporate headquarters, which sits on one of the most valuable parcels in Southern California. The rift revolves around a section of a 1982 city zoning ordinance that governs the ability of companies headquartered in Irvine to expand on their property. Fluor, the first company to go forward with plans for commercial development at its headquarters, maintains that the law permits commercial development.
But Irvine City Atty. Roger Grable, in an opinion sent to the City Council last month, said no, contending that the law requires the companies to expand only to meet their own business needs--not to build speculative commercial developments.
Mayor David Sills, who says of himself that "no one has been a more pro-growth mayor," said the city staff is not opposed to corporate development. "But we are opposed to changing the rules we've all lived by for 2 1/2 years." Sills added that he does not rule out some sort of compromise that would allow Fluor to go ahead.
Adding fuel to the controversy is the fact that Fluor has chosen Dallas-based Trammell Crow Co., the nation's largest commercial real estate developer, as its partner in the proposed project. Fluor officials say that both the Irvine Co. and the Koll Co., the county's largest commercial developer, are upset because the two companies initially were approached by Fluor as possible partners in the project. But Fluor ended up choosing Trammell Crow.
Fluor officials insist that the company has a legal right to develop the land, described by Fluor Vice President James Rollans as "the most expensive lawns in Irvine."
Joseph Trimble, Fluor's general counsel, contends that the 1982 Irvine ordinance gave a number of corporations the right to build for the future but does not specify what they could build.
"Some members of the city staff don't think the ordinance says what it says," Trimble said. "Our entitlement is clear."
"Under the ordinance, we can cover this ground with hotels, honky-tonks or barbershops," said one Fluor executive, adding that the company's plan is designed to serve the whole community. Instead, he said, they are building a recreation center, a day care center, movie theaters and restaurants.
The Koll Co. refused to comment on Fluor's development or Fluor's position on the city ordinance, except to say in a statement, "We do not expect or support special or extraordinary treatment for ourselves or anyone."
But according to one City Council member who asked not to be identified, Koll Co. Chairman Donald M. Koll has been making rare personal visits to City Council members to discuss the implications of Fluor's proposal.
Meanwhile, in a March 8 letter to the mayor, Irvine Co. President Thomas Nielsen writes, "We cannot support the proposed Fluor-Trammell Crow proposed project" without a full analysis.
"It's the boys from out of town who are asking for special treatment," said Gary Hunt, assistant to Irvine Co. Chairman Donald Bren, in a reference to Dallas-based Trammell Crow.
Hunt indicated that the Irvine Co. would not oppose Fluor's project provided that Fluor accept the city's interpretation of the zoning ordinance and ask for permission to put the land to commercial use.
Hunt added that the Irvine Co. is not afraid of competition from new developments. He also denied reports from some City Council members and business leaders that the Irvine Co. has been pressuring them to support its position.
The Irvine Co. obtained a copy of Fluor's plan and asked its staff to review the proposal. Based on that review, Hunt said there would be "horrendous traffic implications" if Fluor were permitted to go through with its long-range plan to expand to a total of 7 million square feet in the next 15 to 20 years.
Fluor officials said their plan includes several major traffic improvements, including loops and off-ramps leading to and from the San Diego Freeway.
City officials and executives of other Irvine businesses said the Irvine Co. executives are worried because the Fluor-Trammell Crow project threatens the Irvine Co.'s $1-billion, 500-acre "golden triangle" development at the intersection of the Santa Ana, San Diego and Laguna freeways.
"It's a war between the giants . . . " said Irvine City Councilman David Baker. "The question is, are there going to be major league competitors other than Irvine (Co.) and Koll?"
Baker added that the City of Irvine needs to stimulate competition among developers, not suppress it.
For Fluor, the proposal is part of a strategy to reduce costs by streamlining operations and raise cash by selling certain assets. Fluor has suffered from the worldwide construction slump. It earned only $1 million on $4.4 billion in sales in fiscal 1984 and last week reported a loss of $32.6 million in the first quarter of fiscal 1985.
Sold for $340 Million
Last fall Fluor sold its land and buildings to Trammell Crow for about $340 million. Fluor paid about $3.4 million 10 years ago for most of the property.
William Lane Jr., managing partner for Trammell Crow's Orange County division, which has been operating in the county for more than 10 years, said his company has a good working relationship with the City of Irvine and never would have signed a joint venture agreement to buy and develop Fluor's land if there were any doubt the company had the right to develop it.
The partners were so confident that Fluor's plan would sail through the City Council that the financing package had a March 1 deadline. The deadline has passed, but First Winthrop Corp., a Boston investment banking firm that specializes in raising money by syndicating real estate deals, is still part of the deal and responsible for raising about 50% of the funds, with the rest coming from local sources.
Although neither Amy Jorgensen, First Winthrop Corp.'s head of real estate acquisitions, nor Fluor officials would disclose the exact amount of the money being raised, sources close to the negotiations said it was about $350 million. Fluor's contention that it can build hotels and office buildings on the land is supported by one former city official who helped draft the ordinance. "No way in the world would I have thought you couldn't use a corporate headquarters entitlement to built what you want," said the former official, who asked not to be identified.
Meanwhile, Bob Rau, president of Parker-Hannifin Corp.'s aerospace group in Irvine, said that if Fluor can't go ahead, his company's plans to build three office buildings and a 500-room hotel on 15 acres it owns in Irvine may be jeopardized. Parker-Hannifin also has plans on file with the city for six office buildings and a hotel on an additional 42-acre parcel of corporate land.
"Logic tells you these rights go with the land," said Rau.