A Family Firm Makes Room for Japanese Partner : Real estate: The Birtchers have been conservative in building a $3-billion empire on their own. An alliance with Mitsui brings a fat checkbook and new faces in management.
From a rise just before Birtcher headquarters you can see a valley spread out like a map. The hillsides have been denuded by bulldozers, and off to the right new houses crouch cheek by jowl, so close you can almost reach out the living room window and touch a neighbor’s wall.
Most Orange County land barons prefer the sleek glass office buildings and fashionable addresses of Irvine and Newport Beach. But the Birtcher family runs its $3-billion real estate empire from an unassuming collection of low-slung buildings across the street from a shopping center in a suburb so new that it incorporated only a few years ago.
This prosperous suburban county tends to lionize the flamboyant entrepreneurs who built its vast subdivisions, office towers and factories as celebrities and conservative folk heroes. A few, such as Donald L. Bren, whose Irvine Co. owns thousands of acres, and William Lyon of Lyon Co., the nation’s largest home builder, are among the richest people in the country.
But the Birtchers still live quietly in a family compound on a hillside in San Juan Capistrano with a stable full of prize horses, a flock of noisy tropical birds and a replica of a 17th Century French manor house. Until recently few people, even in Orange County, had ever heard of them.
That’s because there aren’t any Trump Towers in the Birtcher portfolio. Instead, Birtcher built itself one modest piece at a time. Safe. Deliberate.
“We think in terms of the long run,” says Baron Birtcher, one of the third generation of Birtchers running the family-owned firm. “This is still a pretty conservative company, and as we get older we get more conservative right along with it.”
Until recently.
Now Birtcher finds itself on what may be the cutting edge of a new--and some say disturbing--trend after selling half its development and construction business to the Japanese trading firm Mitsui & Co. for more than $100 million.
It’s the first time that a Japanese company has bought into a large U.S. real estate developer, and some experts say it signals a major shift in the way the Japanese invest in U.S. properties.
Family Continuity
The Birtcher family has been around Santa Ana since 1907, when Justus Birtcher of Philadelphia arrived in the small farming town and began building houses. Fayette E. Birtcher, his son, started the company in 1939, just a few years before the real estate boom that exploded after World War II.
Fayette Birtcher studied entomology in college but quit during the Depression and took a job selling crop-spraying services to farmers. When the farms began to go under he joined with bankers to buy their land cheap. After the war he cleared the orange groves and built houses.
Birtcher plodded along as a small family company for its first 30 years. Then in 1970 it hit the big time: Southern Pacific Railroad picked Birtcher to help develop its huge real estate holdings. Suddenly Birtcher found itself all over the country, constructing all sorts of buildings.
In the Birtcher family, the hard work begins early. The Birtcher men begin spending summer laboring on the company’s construction sites as teen-agers, a fact they like to mention to interviewers.
Fayette Birtcher, now 82, retired in 1965 after a heart attack. His sons Ronald E. Birtcher, 58, and Arthur B. Birtcher, 51, have been co-chairmen of the real estate concern for years. Ronald’s sons, Brandon, 36, and Baron, 30, serve as general partners.
But the family’s interests range beyond real estate.
Ronald Birtcher also owns one of the largest date-farming operations in the nation, which employs 200 people. He is one of the largest U.S. producers of the protea, a tropical flower, and he also owns a vineyard in the Napa Valley, although he doesn’t drink.
His brother, Arthur Birtcher, raises and trains $100,000 hackney ponies for a largely Eastern establishment sport in which the animal is trained to pull a cart in a high-step gait. Arthur is also active in the Roman Catholic Church. He and his wife recently pledged $15 million to the Catholic Church’s Papal Foundation, which helps fund religious and diplomatic missions around the world.
Not surprisingly, the family compound is called Rancho de Dios, or “God’s Ranch.” Arthur’s French manor house is barely an arm’s length from his father’s modern one-story house, which nestles up against Ronald’s California ranch house in the family compound.
Michael H. Voss, Birtcher’s president and the highest-ranking non-family member, said that “the sense of continuity” provided by the various generations of the family is what makes makes Birtcher different.
“Most real estate development companies survive only for the life of the entrepreneur who started them,” he says. “We have a number of additional generations of Birtchers to draw on.”
Still Conservative
A fire crackles in the big fireplace in Ronald Birtcher’s spare, uncluttered office despite the summer heat outside. African masks glare down from the wall. Across the hall, where a Rodin sculpture of a naked man gazes over the secretaries’ heads, is his brother’s office, exactly the same size but decorated with antiques.
He is talking, a little wistfully, about the changes at the company over the years.
“I like to think there’s a family feeling at this company,” Ronald says, “but when you get as big as we are, I think there’s less and less of that.”
The parent company and the partnerships that do the actual developing employ 605 people in 11 offices in the West and in Washington. The family began bringing in outsiders in top jobs such as the presidency in the mid-1980s. The brothers created a board and invited their new managers and partners to sit on it.
One thing, however, hasn’t changed: The Birtcher conservatism. The family keeps what it builds, and unlike some developers, it doesn’t like to borrow on its holdings for the next project. Instead, the family likes to spread the risk around by bringing in a rich partner--an insurance company or a pension fund awash in cash and looking for a profitable place to park it--that puts up most of the money to build a project while Birtcher contributes its expertise. There’s less profit that way, but also less risk.
“I’d say I’m a chicken,” Ronald says. “We’ve been a very low-risk company. We haven’t been the kind of flash-in-the-pan developer you’ve seen in Southern California in the last few business cycles.”
The Birtchers don’t like to put all their eggs in one basket, either. The company has been involved in mobile home developments, business parks and specialty commercial projects, a pursuit that began in 1972 when, with Southern Pacific, Birtcher built the 700,000-square-foot Pacific Design Center in Los Angeles.
This year--its 51st anniversary--the company is ranked the 19th-largest U.S. developer based on National Real Estate Investor’s reckoning of the amount of square footage the company is building. Intensely private, Birtcher will say little about its internal financial workings or the size of its holdings. But it’s clear the company has made the Birtchers very rich.
The company has also made it clear that it is thinking globally. In May, the company said it had reached an agreement to build a $300-million dam for a hydroelectric project with Liberia. The Birtchers’ construction company would build the project--its first abroad--in conjunction with Anaheim-based Arciero Bros., although prospects for the project have been dampened by the civil war in the West African country.
Birtcher also has an eye on Eastern Europe, and it has done business with several large Japanese companies. One of the new financial partners attracted to Birtcher is Mitsui, the huge Japanese conglomerate.
Wealthy Partner
Mitsui, founded in 1876, is an even more venerable firm than Birtcher. It is now the world’s oldest and largest trading company: It makes plastic parts, computer chips, additives for animal feed, canned seafood and other products. It is tied to one of Japan’s largest banks. And it is also Japan’s largest real estate developer.
Japanese companies such as Mitsui began investing heavily in U.S. real estate around 1986. The strength of the dollar against the yen made U.S. products--and real estate--seem cheap to Japanese investors.
In the past few years they’ve spent billions buying part or all of such landmarks as Rockefeller Center in New York and the Arco Plaza in downtown Los Angeles.
At first, like most Japanese buyers, Mitsui simply bought buildings. Recently, though, the Japanese have become financial partners with American developers in constructing new buildings. It’s often cheaper and more profitable than buying an existing building, although there’s more risk.
About two years ago Mitsui decided to take a giant step in real estate: It proposed to buy part of Birtcher.
From Birtcher’s point of view the deal made sense. It takes a lot of money upfront to build a big office building or redevelop an aging downtown neighborhood. There are deposits to tie up land, the cost of getting the necessary permits from local officials. And conservative Birtcher sometimes wasn’t willing to borrow those big sums. Mitsui is a partner with a big checkbook that is willing to sign its name.
Two weeks ago, Mitsui announced it was putting up more than $100 million--nobody will say how much was cash--to buy half of Birtcher, excluding the millions of square feet of buildings already in the Birtcher portfolio. But the deal includes all the projects--more than 31--that Birtcher is working on.
The long-range impact of foreign real estate investment in the United States worries some Americans, who wonder if America isn’t mortgaging its future to the British, the Canadians, the Dutch, the Japanese and other foreign investors.
The Birtcher deal is unlikely to be the last one, though, as more Japanese companies start down the trail that Mitsui has blazed.
“For one thing, it’s a lot more politic for a Japanese company to enter the market by backing highly thought of domestic developers than purchasing property outright in the company’s name,” says Michael Meyer, a managing partner at real estate consultant Kenneth Leventhal & Co., which worked on the Mitsui deal. “Japanese companies are sensitive to the backlash.
“And this puts Birtcher in a uniquely strong position because there are tremendous opportunities to acquire and develop property for those who have access to the capital markets.”
Ironically, Mitsui liked Birtcher because its familial, consensus-style of management resembled Japanese management practices. But some things, it seems clear, will change at Birtcher; the company will become less and less like the small family business it once was.
There’s a new board with six people on it: three Americans and three Japanese. Mitsui eventually wants to put some of its own people into line jobs at the company so that they can learn the business. But aside from its new financial muscle, Mitsui hastens to add, the company won’t change much.
“It’s an American company, and it will be run 100% by Americans on a day-to-day basis,” says Hiroyuki Sato, a senior vice president at Mitsui USA, the trading company’s U.S. subsidiary.
Still, it’s possible that succeeding generations of Birtchers won’t even run the company that bears their name. The elder Birtcher brothers had already begun backing off from day-to-day management even before the Mitsui deal, company insiders say.
Brandon (called Brandy) and Baron, asked about stepping up to succeed their elders, are noncommital.
A high-ranking executive says they may have already come to terms with the changes. “Brandy and Baron recognize it as an end of a chapter,” says Robert M. Campbell, a senior partner who’s been with Birtcher since 1974. “This is an emotional time for the family, because this is a big change.
“But all of us are absolutely convinced this is the way to go. This is the best thing for the company.”
