Mission Viejo Co. Works Denver Landscape : Builder Out to Retrace Orange County Success

Times Staff Writer

"We own everything as far as the eye can see except for what's blue," said Philip J. Reilly, his hand motioning toward a vast expanse of land between where he was standing and the distant blue-hued range of rugged mountains south of Denver.

On a canvas of rolling prairies, the Mission Viejo Co. is creating a Colorado version of the highly successful planned community that bears its name in south Orange County.

The land development company is in its fifth year of implementing a 30-year plan to develop 12,000 acres of the 22,000-acre Highlands Ranch that it purchased in southeast Denver for $29 million.

To tackle the mammoth endeavor, the firm has built a 300-person division in Colorado, and it has transferred many of its first-string executives to Denver from its Orange County corporate headquarters, where about 700 employees continue to work on the completion of Mission Viejo and its sister community, Aliso Viejo.

No Plans to Return

Ten of the Colorado division's 13 top officials, from vice presidents on up, previously were employed in Mission Viejo. Phil Reilly, 55,the development firm's president and chief executive, moved to Denver two years ago with the intention of staying six months. Now he says he has no plans to return to Orange County.

Opportunities for the Mission Viejo Co. in Denver are rated exceptional by the company and by real estate marketing analysts. They frequently compare the growth potential of the south Denver area to south Orange County at the onset of its building boom in the 1960s.

Despite the Mission Viejo Co.'s commitment of resources to its Colorado endeavor, its work in Orange County will not be disrupted, according to company officials. They expect that the company will continue its development activity in both areas until after the turn of the century. "It is a brilliant move (for the Mission Viejo Co.) to transplant their development personnel, knowledge and capital to a market that has begun to experience what Orange County experienced 10 to 15 years ago," said Mark Smith, senior analyst for The Goodkin Group, a real estate research firm.

Like the Mission Viejo community, which was conceived 20 years ago, Denver's Highlands Ranch is also master planned for 30,000 homes and 90,000 residents upon completion. The first Highlands Ranch houses were sold in 1981. So far, about 1,100 homes have been occupied.

New Strategy

However, in Denver the Mission Viejo Co. is moving earlier into industrial, office and retail development. In Orange County, the company delayed development of business properties because it believed its land was too distant from the leading edge of population and businesses surging south from Los Angeles.

Mission Viejo Co. officials say that the company's nearest competitor, the Irvine Co., was able to capture most of south Orange County's initial industrial growth because its own large ranch development lies a nudge farther north. As a result, Irvine has attained national prominence for its state-of-the-art, campus-like business parks, while Mission Viejo has gained recognition primarily as a bedroom community.

Development plans for Aliso Viejo, another community that the Mission Viejo Co. is carving on the outskirts of Mission Viejo, call for substantially more employment centers. But the Mission Viejo Co. expects it will take yet another two years before economic pressures mount enough in Aliso Viejo to warrant accelerating construction of retail, office and industrial buildings.

By contrast, Highlands Ranch is poised on a frontier of business expansion. Model homes overlook a horizon of city skyscrapers just 12 miles to the north in downtown Denver. Housing developments and shopping centers push against the community's northern boundary, while to the south virgin prairie lands stretch 40 miles to Colorado Springs.

Off Beaten Path

And although the Highlands Ranch's planned business centers are somewhat off the beaten path, a major new beltway under construction soon will link them to freeways that intersect Denver's urban hub.

It was to seize imminent business development opportunities that Reilly decided to move to Denver. Until Reilly came the company had been losing potential deals to other developers, according to Jim Toepfer, president of the Colorado Division. "It was driving Phil crazy," Toepfer said.

Since Reilly arrived in Denver, he has inaugurated a $2-billion plan for developing business properties on 1,200 acres of Highlands Ranch over the next 30 years.

However, in Denver, as in Orange County, the Mission Viejo Co.'s primary mission is to build an old-fashioned hometown. "We try to tell our business people that we are different from most business properties because when you locate your business here you also have a community and all the things that go with it," said Reilly.

Sense of 'Deja Vu'

A few weeks ago Reilly looked from a window in a new Highlands Ranch office building and took stock of the embryonic town taking shape. He pointed to two churches just built, a child-care center and six-lane-wide boulevards designed for future traffic that now carry only a trickle of cars. Having witnessed Mission Viejo's birth 20 years ago, Reilly said that in Denver he often experiences a sense of " deja vu ."

He also has the satisfaction of knowing that the planned community concept, which the Mission Viejo Co. helped to pioneer in Orange County, is proving equally popular some 1,200 miles away.

The Mission Viejo Co. and its corporate parent, Philip Morris Inc. will not disclose profit figures for individual development projects. According to Philip Morris' 1984 annual report, the Mission Viejo Realty Group, which includes the Mission Viejo Co. and newly created commercial property subsidiaries, last year posted operating income of $36.1 million on revenues of $237.7 million. It was the second best year in the group's history.

Mission Viejo Co. officials say that the Highlands Ranch "dovetails" with the company's Orange County developments. "We were winding down Aliso about the time they purchased the Colorado project," said Jack Raub, executive vice president of Mission Viejo Realty.

Equal Profit Forecast

Ultimately, the company says it expects to reap as much profit from Highlands Ranch as from Mission Viejo, since both projects are about the same size and have about equal development potential.

"We came to Denver to do land development and building because we felt that Denver was very much like Orange County, the demographics were much the same," Reilly recalled. As in Orange County, the preponderance of initial home buyers at Highlands Ranch are young, upwardly mobile, family-oriented professionals.

To date the housing projects in Highlands Ranch have whipped most of the local competition. Tom Hannen, vice president of Market Profiles' Denver office, said that recently Highlands Ranch had the four hottest selling single-family housing projects in Denver's fast-growing "county line" region.

But the Mission Viejo Co.'s success in Denver hasn't come easily. The company's first development attempt 12 years ago in the Denver area--the construction of a 600-acre community in the suburb of Aurora--sold more slowly than the company had expected.

Analysts' Comments

Some analysts say that in Aurora the Mission Viejo Co. too glibly tried to reproduce exactly what it had created in Orange County. It set about building a community named Mission Viejo, complete with mission bell street lights. And at first it marketed housing products with Spanish names and a California flair that simply didn't have appeal in the more traditional Denver market.

In summary, analyst Sanford Goodkin contends that the Aurora project "suffered from overconfidence."

Reilly agreed that the Aurora experience was ego-deflating. "It doesn't matter how big you are in Orange County, when you come over here you will probably get stuck with the smallest subs (contractors) and you're not going to know all the idiosyncrasies of a piece of ground or of a municipality," he said.

Also, the company had to overcome its image as a California intruder on the Denver scene. Reilly recalled that his first meeting with the city officials of Aurora started out rather chilly: "They (the city officials) sat in a room with their hands folded and they looked at me and said: 'What is it the messiah from the west has to tell us today?' "

Lessons of Aurora

Reilly said the company learned a lot from the Aurora project, especially the importance of bringing its own trusted executives on site to manage development rather than try to manage by remote control. When the company later considered developing Highlands Ranch, Reilly said, he asked Toepfer, who had been one of the original designers of Mission Viejo, to move to Denver to head the operation.

If it hadn't been for the Aurora project, Reilly said the Mission Viejo Co. probably wouldn't have heard of the proposed sale of the 22,000-acre Phipps Highlands Ranch by an investor group headed by Denver oilman Marvin Davis.

"I can say when I first saw the property in about 1978 . . . and I looked across the open property, and I saw the boundaries of growth at the ranch fence and I saw a price tag of $1,250 an acre, I said there is no way this piece of ground can't be a startling success," Reilly recollected.

In retrospect, however, Reilly said that if he hadn't acted swiftly, he might have lost the chance to buy the ranch. He said he later learned that other large public companies like Cadillac Fairview and Mobile Land Development Co. had been seriously considering the purchase.

Call for Philip Morris

Reilly said it took only a single telephone call to the Mission Viejo Co.'s corporate parent, Philip Morris, in New York, for him to receive approval to pay $2 million in cash for a year option on the Highlands property, during which time the company could study the feasibility of developing it.

The ability to get fast corporate decisions, Reilly said, is the main reason why the Mission Viejo's 15-year relationship with the giant Philip Morris company has worked successfully, although many other marriages between development firms and public conglomerates have broken up.

Publicity about the Mission Viejo Co.'s development proposal for the Highlands Ranch brought an immediate irate response from local residents. Early on, someone hung the company in effigy at the entrance to the ranch property, Reilly said.

Critics of the proposal objected that the Highlands Ranch, located just south of the Arapaho County line, would become the first large-scale development in agrarian Douglas County. Mission Viejo Co. officials were accused of starting the "Californication" of Denver, bringing with them urban sprawl, traffic and smog.

Master Plan Approval

The company finally won county approval of its master plan for development, but only after conducting about 45 meetings with various government and civic groups. As a peace offering, the company agreed to retain the most picturesque, southern half of its property as open space.

The Mission Viejo Co. now obtains rather swift approval of its development plans, said Douglas County Commissioner Suzy McDanal. In large part, she said, it is because the company does its homework. "There is not another project in the county that comes through as clean as Highlands does," she said.

Also, the Highlands Ranch project no longer is quite so extraordinary in Douglas County, where 21 planned communities now are approved for development, according to John Reardon, chief executive officer of the Douglas County Economic Development Council.

Reardon said although the Mission Viejo Co. was Douglas County's first big league developer, it has been followed by other high powered players like Mobile Land Development Co., Lincoln Savings & Loan and American Continental Homes.

Douglas County Growth

"Now Douglas County has the largest number of planned communities under construction in the United States," said Reardon. Some builders are calling the corridor between Denver and Colorado Springs "Orange County," he said.

But Highlands Ranch has the advantage of leading the pack. It offers Denver home buyers a community where everything, from the color of the houses to the streets and landscaping, is planned and controlled.

Highlands Ranch has attracted residents such as Pam Allen, president of the community association's board of directors. Allen said when she and her husband, a Texaco geologist, moved from Houston to Highlands Ranch two years ago, they were impressed that the community already had a large recreation center and rules that, for instance, require home buyers to landscape their yards within 90 days or risk a lawsuit. By contrast, she said that a dearth of zoning had resulted in hodgepodge development in Houston where her family had lived in a new subdivision with no more amenities than a 50-foot greenbelt and a playground with a swing set.

In many ways, Highlands Ranch resembles its elder Orange County sibling, even to the looped-street design that routes traffic around, rather than through, neighborhoods. The differences are subtle: houses with basements and built in brick and wood, rather than tile and stucco, and marketed with names like Gleneagles and Falcon Hills, rather than Seville and Granada.

Broad Range of Prices

As in Mission Viejo, Highlands Ranch offers a broad range of housing prices--from the $50,000s to more than $200,000. The pricing is about 20% to 30% less than comparable housing in Orange County, Reilly said.

Also, as in Mission Viejo, a hometown spirit is kindled at Highlands Ranch by an activities committee of residents established by the company. The committee organizes year-round events such as an annual Easter egg hunt, Santa's arrival at Christmas and community-wide barbecues and sports contests.

Spearheading the activities committee at Highlands Ranch is Arthur S. Cook, the company's director of community relations, who previously did much the same work in Mission Viejo. Driving down County Line Road, which separates Highlands Ranch from the dense development of neighboring Arapaho County, Cook acknowledged that houses in Highlands Ranch really won't be much different from many other houses being built in Denver.

"You know a house is a house," he said. "We build quality houses. But so do other builders." What is different, he said, is that Highlands Ranch is offering "a sense of community."

'Sense of Place'

To foster that "sense of place," as Mission Viejo Co. officials reverently call it, the company has arranged for the community to have its own mailing address and zip code, its own service district, and even its own monthly magazine, the Highlands Ranch Reporter, that the company publishes.

One of the community's major selling points is a large recreation center, with an Olympic size pool, tennis courts and exercise rooms. The center is now in the midst of a $4.5 million expansion.

In the fall of 1982, just a year after Highlands Ranch began selling homes, an elementary school opened on the ranch, although there were only 72 students to attend. The company spent $3 million to build a school--an amount that will eventually be repaid through a tax assessments on Highlands Ranch homeowners--and for the first year subsidized the cost of the school's operation.

In developing commercial properties, Reilly said, the company is making land-pricing concessions to promote the right mix of land uses to serve the community. He said, for instance, that the company sold land to an appliance store for $12 a square foot and to a bowling alley in a better location for $6 a square foot because that was all the bowling alley could afford.

"We don't have a philanthropic bone in our body," Reilly commented on the economic concessions. "Everything we do we do for the purpose of making a profit for our shareholders. What makes us perhaps different is that we have a longer term view of what's profitable."

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