Irvine Co. to Curtail New Projects and Cut Its Work Force

Irvine Co., the giant Orange County developer, said Wednesday that it will dramatically curtail new projects and lay off 40 employees as its prepares for a lengthy economic downturn.

The action by Orange County’s premier developer underscores the mounting problems of the real estate industry in Southern California, which is being hurt by a slumping economy and financing difficulties related to bank and thrift problems.

The giant land company, owner of one-sixth of Orange County, blamed the layoffs--11% of its 370 workers--and its need to slash expenditures on a cash-flow crunch caused by the “onerous credit restrictions” federal regulators have imposed on banks and savings and loans.

Irvine Co. is dependent on land sales to builders to finance ongoing activities, and the national credit crunch has made it difficult for builders to find financing, company officials said in a memo circulated to employees Wednesday.

“The savings and loan debacle has led to severe constraints on financing for new construction,” the company said in the statements signed by Irvine Co. Vice Chairman John M. Galvin, Executive Vice President William H. McFarland and Senior Vice President Gary H. Hunt.

“As a consequence, many of us are witnessing the most difficult time in memory in the relationship between the real estate and the banking industry. As we look into the future . . . the prospects for a continued strong real estate market are slim.”

The memo announcing the layoffs and reduction in new activity said the company still is “very much in business” and doesn’t plan to shut down ongoing projects--including the Irvine Spectrum, a 2,600-acre commercial and industrial park, and four major residential communities planned to ultimately include more than 30,000 homes.

The layoffs were probably smaller than they might have been because the company cut more than 1,000 workers during a major restructuring from 1986 through 1988.

The company also shed its active involvement in land development and became what owner and chairman Donald Bren has referred to as an “executive developer.” In that role, the company is a landowner, planner and investor. It plans entire communities, then sells the residential land, and sells or leases the commercial property to other developers.

Irvine Co.’s latest layoffs will hit hardest in the company’s finance and land-planning units, said company spokesman Larry Thomas. Most of those to be laid off will receive notices Friday, he said, and will be given several months of severance pay as well as job placement assistance.

Thomas declined to identify specific proposed projects that would be delayed under the new economic plan but said they would be mainly income-producing projects including apartments, industrial parks, office buildings and retail centers.

But he said development of the high-profile Newport Coast residential-resort project, to be built on the last major stretch of undeveloped coastal land in the county, should not be affected. Most of the residential acreage has been sold to developers and has cleared escrow, he said.

Any delays in the project, which is to include two golf courses, three hotels, 2,600 homes and 7,200 acres of open space, would be the decision of an individual development firm, Thomas said.

The company retains title to most of the income-producing property on its vast 64,000-acre holding and currently has more than 125 separate income properties, including the lucrative Newport Center office complex and its Fashion Island mall.

Irvine Co.’s layoffs are minor compared to others in the real estate and development industries over the past six months. In Orange County, more than 1,000 construction workers have lost their jobs in the past two months. Industry insiders say most builders have been quietly laying off both construction workers and administrative and financial personnel.

The action by Irvine Co. came as no surprise to real estate experts. The memo announcing the cutbacks “pretty much says it all,” said real estate industry consultant Alfred Gobar.

“Since the Irvine Co. only sells lots and doesn’t build homes, it is dependent on home builders, and since home builders can’t get financing to buy land, they are in a crunch. They are at the bottom of the food chain,” Gobar said, “and the food chain has been interrupted by the federal government and its regulation of the banking industry.”