Irvine Co. Plans Major Project Cuts, Layoffs : Downturn: The developer blames the action on a cash-flow crunch caused by the credit restrictions federal regulators have imposed on banks and savings and loans.
The Irvine Co., the big Orange County developer, said Wednesday that it will dramatically curtail new projects and lay off about 11% of its work force 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--40 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.
The 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--which include the Irvine Spectrum, a 2,600-acre commercial and industrial park, and four major residential communities ultimately planned for more than 30,000 homes.
The size of the layoffs were mitigated because the company went through a major restructuring from 1986 through 1988 in which more than 1,000 employees were slashed from the payroll.
The company then shed its active involvement in land development and became what owner and Chairman Donald L. Bren has referred to as an “executive developer.” In that role, the company is a landowner, planner and investor. It plans entire communities and then sells the residential land and sells or leases the commercial property to other developers.
The Irvine Co.’s latest layoffs will hit hardest in the company’s finance and land-planning units, company spokesman Larry Thomas said. 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.
The Irvine Co.’s layoffs are minor contrasted with others occurring in the real estate and development industries over the past six months. In Orange County alone, more than 1,000 construction workers have lost 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 the Irvine Co. did not come as a surprise to real estate experts. The memo announcing the cutbacks “pretty much says it all,” Alfred Gobar, a real estate industry consultant, said.
“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.”
Thomas declined to identify specific proposed projects that would be delayed under the new economic plan but said they would mainly be 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 on the last major stretch of raw coastal land in the county should not be affected because most of the residential acreage already has been sold to developers and has cleared escrow.
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.
The company retains title to most of the income-producing property on its vast 64,000-acre holding and has more than 125 separate income properties, including the lucrative Newport Center office complex and its Fashion Island mall.
Major projects now under way include:
* The 9,400-acre Newport Coast, where the first lots for custom homes are now scheduled to go on sale early next year.
* The new 2,600-unit Westpark II planned community approved last week by the city of Irvine.
* Tustin Ranch. About 9,000 homes are planned on the 1,740-acre parcel between Tustin and East Orange, and about 1,500 have already been built.
* East Orange. Planning is still in process on the 7,000 acres the company owns in the hills just east of Orange. The company wants to build as many as 12,350 homes and several small retail and commercial projects. Construction isn’t expected to begin until 1993, and company officials say they hope the current economic crunch has ended by then.
* Anaheim Canyon. A total of 7,900 homes are proposed for several thousand acres in the canyons east of Anaheim. An environmental impact report was recently filed with the city. Construction is several years away.
* Irvine Spectrum. The 2,600-acre project, billed by the company as the world’s largest business park, is about two-thirds completed. The company has sold some of the land and leased other parcels. A major regional shopping mall is proposed for the project, but the company has been hard-pressed to find major tenants and admits that construction is a long way off.
