A little over two years ago, on a chilly fall day in the Detroit suburb of Bloomfield Hills, Irvine Co. Chairman Donald L. Bren sat in a courtroom and described one of the worst deals the huge Newport Beach development company ever made.
The deal, he said, occurred in 1978 when the company sold for a paltry $17 million 100 acres on a ridge overlooking some of Newport Beach's most valuable real estate. Less than a year later Ford Aerospace, the new owner, sold it for $35 million.
Bren was trying to persuade a judge that the Irvine Co. had been so poorly run that it wasn't worth more than $1 billion when he bought out most of the other shareholders at that price in 1983.
The judge hasn't yet ruled in that case. But Bren may soon have a chance to get back some of the lost profits on the land sale.
Here's why: Ford Aerospace, one of the Irvine Co.'s biggest tenants, said Friday that it's for sale. Its Aeroneutronic division makes missiles on another 99 acres it leases from the Irvine Co. in Newport Beach.
And not just any 99 acres, either. These are 99 prime acres on that same ridge where the Irvine Co. owned that other 100 acres.
The land overlooks the sprawling Newport Center shopping and office complex and, beyond that, the ocean. It's just a stone's throw from the tony Big Canyon Country Club, a neighborhood J.M. Peters Co. Inc., a local home builder with a practiced eye for good ground, calls "the Bel-Air" of Orange county.
Ford Aerospace has leased the 99 acres since 1958, when nobody could have foreseen how much ocean view property in Newport Beach would be worth. So Ford's rent is thought to be relatively low, even though the lease has probably been renewed once and the rent raised.
If Ford closes its plant there--as some experts suspect may happen after a sale--and if the land could be rezoned from industrial to, say, residential, it could be worth more than $1.5 million an acre to a home builder, according to local real estate experts.
That's assuming the Irvine Co. can and would buy the lease back from Ford. Neither company would comment on the lease Friday.
Take a look at what happened to the other 100 acres: Ford enlisted a Canadian home builder called Daon Development to build on the land. Daon ran into financial problems, and Ford sold the land to J.M. Peters for $35 million.
In the early 1980s Orange County had few of what are termed in real estate jargon "executive communities," the kind of neighborhood where the houses are huge and expensive and the landscaping manicured. Belcourt--as Peter's new neighborhood off Ford Road between MacArthur and Jamboree boulevards was called--was one of the first.
Peters built 280 houses and condominiums behind a wall with a couple of guardhouses there. The least-expensive condo cost $425,000 when Belcourt opened in 1982 in the midst of the recession. But expensive housing wasn't selling and the Newport Beach home builder went through some tough times before the market came back.
Now, however, a house in Belcourt goes for up to $3 million, according to local real estate brokers, and even some of the condos sell for more than $1 million.
Though the market for big new houses is slumping in Orange County, experts say the Ford plant's location above Big Canyon is so prime that the home builders should be able to sell any houses they build on it.
J.M. Peters, president of the company that bears his name, says he might be interested if the land becomes available. "Obviously we'd be interested because the location is so good," he said Friday.
In fact, at one time the Irvine Co. considered putting Newport Center there instead of the location closer to the ocean that it occupies now, says a longtime Irvine Co. employee.
Ford was able to lease the land in 1958 because the Irvine Co. had yet to draw up a master plan for its nearly 70,000 acres, which makes it the largest private landowner in Orange County. The master plan might have prohibited an industrial plant on the ridge in favor of housing or offices, but the plan wasn't drawn up until the early 1960s.
In 1977 Bren bought the Irvine Co. with a group of other wealthy investors, including Ford Motor Co. family scion Henry Ford II. Bren was a major stockholder and a restive member of the Irvine Co. board, he testified in Detroit. (Heiress Joan Irvine Smith contends in the suit that Bren cheated her out of a fair price for her stock in the company.)
The company's management was so "frightful," Bren told the judge when he testified in 1987, that he decided to buy the rest of company to protect his investment. One of the more "frightful" examples was the sale of the 100 ridge acres 10 years ago to his fellow stockholder's company, Bren testified.
Ford Aerospace wanted to build office buildings on its new land but the city of Newport Beach demurred. Ford then tried the home-building scheme but that flopped when Daon ran into its financial problems.
If the Irvine Co. has any plans for the 99 acres now, it's not saying. And Ford Aeroneutronic won't discuss what it's planning to do with its lease.
This ground lease, as it's called, was probably written at a low rent, say experts, because the company was certainly anxious to induce such a big employer to move to Newport Beach (Aeroneutronic had been in Glendale). Such leases are usually renewed after 25 years, say experts, with a rise in rent based on a percentage of the land's appraised value. Even so, the experts say, the percentage is probably relatively low and, consequently, the rent is too.
As for the zoning, well, that will take the Newport Beach Planning Commission and City Council to change from industrial to residential.
It's such a large plot that it will likely take a long time to rezone, says a Newport Beach city planner. As for trying to build offices there again, that is unlikely because they would generate a lot of traffic.
There is only one thing most people agree on about this piece of land. It is now an unlikely spot for a plant, and it will probably end up under something else.