In the old days, the Irvine Co. built its own homes under the name Irvine Pacific, a subsidiary that now handles only the developer's apartment construction.
But the hassles of dealing with both the wholesale and retail ends of the business got to be too much.
So the company stopped building homes in the mid-1980s and instead began planning and developing communities and selling raw land to so-called merchant builders, such as J.M. Peters Co., which actually built and sold the homes.
The merchant builders could make big profits--20% to 30% of the selling price of each unit--when times were good. But they risked everything when sales slowed, while the costs of buying and improving raw land remained.
The county's other big landowner, the Mission Viejo Co., also quit building homes in 1987. And the Santa Margarita Co. used merchant builders from the beginning, when it developed its Rancho Santa Margarita community in the late 1980s.
But times and economic realities change. Now the Irvine Co. has decided it can profit by hanging onto its land and simply hiring out the building chores. The credit crunch, it seems, has made it difficult to sell the raw land to the county's cash-starved merchant builders.
So a building firm headed by Donald L. Bren, the Irvine Co.'s owner, has been retained as a fee builder to construct and sell homes on lots owned by the Irvine Co. for a flat percentage of the retail price. The firm's name was changed last month from the Bren Co. to California Pacific Homes.
Irvine Co. officials will not disclose Cal Pacific's cut for each home, but typical fee builder arrangements call for commissions of 6% to 10%, industry insiders say.
While the Irvine Co. is the only one of the county's big landowner-developers to use a fee arrangement, a lot of area builders are making a go of it that way these days, said Jeff Meyers, principal of the Meyers Group, a Newport Beach market research and consulting firm.
Banks, savings and loans and the federal government--through its vast portfolio of foreclosed property acquired from failed thrifts--all use fee builders to complete projects that have run into trouble, he said.