Mitsui to Pay $100-Million Plus for Part of O.C. Firm

Birtcher, the big Orange County-based real estate developer, said Monday that a giant Japanese conglomerate, Mitsui & Co. Ltd., has agreed to acquire half its development and construction business for more than $100 million.

The deal creates a partnership between one of the nation’s largest real estate developers and the world’s largest trading company. The investment is thought to be the largest yet by a Japanese firm and an American real estate concern.

It also represents a significant shift in Japanese real estate investment strategy in the United States. Until recently, Japanese firms simply bought buildings or were passive investors in American developers’ construction projects. Now, by positioning themselves as developers, they gain significantly more control over their investments.

“This is part of a trend where the Japanese are moving from purchasing completed, fully leased buildings to getting into the development process,” said Michael L. Meyer, a managing partner at the accounting firm of Kenneth Leventhal & Co., which worked on the Birtcher acquisition.

A family-owned firm with a relatively low profile, Laguna Hills-based Birtcher is one of the West Coast’s oldest developers. It was founded 51 years ago.

Mitsui is an even more venerable company. Founded in 1876, it has since diversified into a dozen different industries from canned seafood to computer chips.

Mitsui’s relationship with Birtcher goes back three years, to about the time that Mitsui started its U.S. real estate subsidiary. Mitsui and Birtcher built four projects together, with the Tokyo-based firm putting up most of the money and the real estate firm most of the expertise.

“About two years ago, we were looking for a way to expand our business,” said Birtcher President Michael Voss. “What we liked about Mitsui was that they were very entrepreneurial. And our management styles were similar. This is a family company, and we make decisions based on consensus,” which is a style closer to how Japanese companies operate.

Birtcher says the deal provides it with more capital--real estate development often requires a lot of borrowed money--international contacts and better access to international capital markets.

The deal comes less than three weeks after the company announced its first major overseas project--a $300-million contract to build an earthen dam to generate electric power in Liberia. Birtcher has indicated that it wants to expand internationally.

“This transaction represents our involvement in what we see as the globalization of the world real estate markets,” said Voss, who will serve as president of the joint venture.

The partnership, known as Birtcher Real Estate Ltd., provides Mitsui with a stake in 31 Birtcher projects under construction. It also gets half of Birtcher’s construction company, which once worked mostly on Birtcher’s own projects but is now doing more outside jobs.

“We were taking a very passive role in our real estate investments,” said Hiroyuki Saito, a senior vice president at Mitsui & Co. USA. “We had accumulated exposure and we were dependent on our partners’ expertise. So we decided we’d like to evolve into a developer.”

It is Mitsui’s first direct investment in a U.S. real estate development company.

Not included in the deal is real estate worth up to $3 billion in Birtcher’s portfolio. Also excluded from the purchase are a business that advises pension funds on their real estate investments and Birtcher’s thrift industry division.

Meyer said the joint venture has a political as well as economic purpose.

“Not only is developing their own buildings another way of creating value,” Meyer said, “it’s also more politic for a Japanese company to enter the market by backing a highly thought of domestic developer than to purchase outright a property or a development company under a Japanese name. Japanese investors are sensitive to the backlash in this country.”

Birtcher is run by two brothers, Ronald E. and Arthur B. Birtcher, who share the chairman’s job at the company. They are sons of the company’s founder, Fayette E. Birtcher, who started the company as a home builder in 1939.

The company’s top officials have shown a growing interest in international development. Earlier this year, Arthur Birtcher and his wife donated $15 million to the Papal Foundation to help the Roman Catholic Church carry out its religious and diplomatic missions around the world.

Birtcher will continue to operate as it has in the past, Voss said. Mitsui will have a say only in policy making, officials of both companies said, and will have members on the Birtcher board and veto power over any decision. Eventually, Mitsui hopes to have Japanese executives at the operations level at Birtcher.

Birtcher is now ranked as the nation’s 19th-largest developer by various trade journals based on square footage under construction and is one of the largest on the West Coast.

Among its biggest projects are West Hollywood’s Pacific Design Center, 1.2 million square feet of design showrooms; the Los Angeles Wholesale Produce Mart, half a million square feet of space for produce wholesalers; Centerpointe La Palma, a 42-acre business park in the Orange County city, and Xerox Center, a three-building office development in Santa Ana.

Mitsui & Co. is Japan’s oldest trading company and has had a U.S. office since 1879. As the company diversified, it began to develop real estate in Japan.

It is a passive real estate investor in Europe, as it was in the United States until now. Most of its U.S. investments are on the West Coast, which Mitsui says it likes as an investment because population growth rates are so far above the U.S. average.

“I’ll think you’ll see more foreign companies come in and align themselves with major builders because they don’t have the expertise to develop in this country on their own,” said Mark C. Coleman, a partner at the accounting firm of Deliotte & Touche.

“They’re becoming more willing to take a risk for a greater reward by getting involved in developing buildings from the ground up, rather than paying a high price for a building that’s already built and leased up.”

The Mitsui deal with Birtcher is “unusual now,” said Coleman, “but it won’t be the last one we see.”

MITSUI & CO. BUYS INTO BIRTCHER MITSUI AT A GLANCE HEADQUARTERS: Tokyo. U.S. UNIT: Mitsui USA, based in New York. BUSINESS: Promoting U.S. exporting and importing; involved in integrated global trading services; involved in countertrade and payment-in-kind arrangements to facilitate trade with nations with hard-currency shortages. SALES: $26 billion for year ended March 31. U.S. INVESTMENTS: $300 million in more than 80 subsidiaries, joint ventures and partnerships. MAJOR PRODUCTS: Subsidiaries make plastic components, feed additives, canned seafood, computer chips, and are involved in warehousing, distribution and financing. EMPLOYEES: Subsidiaries employ about 4,500 workers in the U.S. MAJOR BIRTCHER PROJECTS Pacific Design Center, 1.2-million-square-foot design showroom, art gallery and amphitheater in West Hollywood. L.A. Wholesale Produce Mart, 527,000 square feet in five buildings including 88 bays for produce merchants in downtown Los Angeles. Centerpointe La Palma, 42-acre, master-planned, mixed-use business park in La Palma. Riverside Marketplace, 200-acre redevelopment in downtown Riverside, including renovation of historical buildings, offices and art museum. Xerox Center, three-phase, 1.1-million-square-foot office complex in Santa Ana. The Wellington, 234-unit, $33-million congregate living facility in Laguna Hills. Irvine Business Complex, $158-million office complex that includes two 18-story towers, athletic club and day-care facility. Sources: Mitsui & Co. and Birtcher Inc.