Irvine Co. Seemed to Ignore Warning Over Growth Plans

As the Irvine Co. plunged into quickening development of its huge landholdings in 1983, it apparently took little heed of a warning that such activity might stir public anti-growth sentiment, according to information revealed here Thursday in a court hearing.

In an ongoing trial to decide whether Joan Irvine Smith and her mother will get up to $500 million for their 11% interest in the real estate development firm, company Vice Chairman Thomas H. Nielsen testified that the firm’s community relations experts had expressed strong concern about the company’s proposed 1983-84 business plan.

A report written by Robert Shelton, then vice president of the company’s planning and community relations division, said: “The scale of development proposed in the business plan may severely overload the government bureaucracies and political systems required to process our projects. This overload can lead to community friction and a probable reaction to ‘too much growth.”’

Nielsen, who was president of the Irvine Co. at the time, said Shelton wrote the report, dated July 18, 1983, at his request after Shelton said that he had reservations about the business plan. Nielsen said that Shelton described the same concerns verbally to the company’s board of directors.

Shelton, who has worked as a political and community relations adviser to the Irvine Co. for 17 years, is now an independent consultant devoting the majority of his time to the company. Shelton said in a telephone interview after Thursday’s hearing that none of the recommendations or concerns in the report were reflected in the business plan that ultimately was adopted by the board of directors in September, 1983.

In view of current grass-roots efforts under way to pass a slow-growth initiative in Orange County, Shelton said: “I think our (the planning and community relations division’s) estimation of trends was generally accurate.” He declined to comment further on the matter until he testifies later in the hearing on the shareholder dispute.

The board-adopted 1983-84 business plan called for stepping up development of for-sale housing, apartments, office and retail buildings and hotels over the next five years to take advantage of fallen interest rates and pent-up demand coming on the heels of a construction-stifling real estate recession.

The planned rebound of development on the Irvine Ranch was to be led by housing, with a goal of 12,145 for-sale homes to be built over five years. By contrast, only 6,791 for-sale homes had been built on the Irvine Ranch in the previous six years.

Nielsen said that in 1983, the Irvine Co. set out to increase its market share of the county’s total housing sales to 30% from a level of 10% to 15%.

In a cover letter to the 1983 business plan, Nielsen acknowledged unsolved issues but presented an overwhelmingly optimistic picture of booming growth predicated on the county’s economic vitality. He said the plan “assumes that local cities, the county and the state will be more cooperative. . . . “

According to the Irvine Co.’s five-year business plan compiled in 1983 and submitted into evidence for the hearing, the company in its fiscal year ended June 30, 1983, expected to have net income of $20 million on revenues of $187 million.

Profits were forecast to jump to $57 million in 1984 and $101 million by fiscal 1988. Revenues were to nearly double to $352 million in 1984 and $767 million in 1988.

In retrospect, however, company officials say the company fell far short of its anticipated growth. In attempting to reconcile the different tone of the two documents, senior Irvine Co. officials, who asked not to be identified, said Thursday that the business plan was something of a sales tool used to woo lenders, while the Shelton report looked straight at the perceived problems with the plan and recommended an implementation strategy.

These executives said that since 1983, the company’s growth plans have had to be cut back substantially--primarily because of the type of political and practical constraints that the Shelton report described. They would not be more specific, saying that the company’s current business plan is confidential.