Irvine Co. to Cut Staff by Another 30 to 40 People

By SUSAN CHRISTIAN

May 23, 1992 12 AM PT

TIMES STAFF WRITER

NEWPORT BEACH —

Blaming the persistent real estate slump, Orange County’s premier developer and landowner Friday announced its second round of layoffs in five months and said it will realign its top management.

Said Irvine Co. chairman Donald L. Bren in a memo to employees: “Beginning today, you can expect to see new steps to cut expenditures, reduce our staff by 30 to 40 people, and continue our evolution to a sophisticated real estate investment and management company.”

Some employees were told Friday morning of their impending dismissal, company spokesman Larry Thomas said. Others will have to sweat out the long Memorial Day weekend before learning their fate.

“Faced with a sluggish real estate economy--which is only slowly showing random signs of modest recovery--we must acknowledge that our world will be different,” Bren said in the memo.

In January, the company cut its staff by 16%, from 386 to 326 employees. The latest reduction will bring the company’s work force to less than a fifth of the 1,500 it had on its payroll at its peak in 1985.

Bren also announced the creation of a management team composed of four senior officers: William H. McFarland, Gary H. Hunt, Richard G. Sim and Richard E. Moran Jr.

The team members will report directly to Bren. This represents a promotion for Sim, who previously reported to McFarland, and for Moran, who reported to Vice Chairman John Galvin. McFarland and Hunt already reported to Bren.

Bren said the team will take “a fresh look at our operations from their new perspectives.”

McFarland will continue to head the company’s land and residential development group, and Sim will continue to head the investment properties group. Moran, formerly senior vice president of corporate finance, becomes executive vice president of that group. Hunt’s title, which had been senior vice president of corporate affairs, becomes executive vice president of corporate affairs.

Bren’s memo to employees does not address the layoffs until well into its second page. Industry watchers said, however, that the layoffs are the bigger news.

“It sounds as though (the four senior officers) will have the same responsibilities,” said Martin A. Brower, editor and publisher of the Orange County Report, a monthly business newsletter. The staff cuts, he said, “are the more significant change.”

An executive of a brokerage that has a marketing arrangement with Irvine Co. said of the memo: “It’s like, ‘And, oh, by the way, we’re cutting 30 people.’ That’s 10% of their staff. They’re covering the fact that they’re having to let go of more people by putting it into the context of a larger decision.

“I don’t think (the restructuring) will affect the day-to-day operations of the Irvine Co.,” said the broker, who asked not to be identified because of his working relationship with the developer.

The Irvine Co.’s work force has steadily dwindled since the mid-1980s, through a massive reorganization and numerous subsequent layoffs. Before January, the company’s last previous major staff reduction had been in November, 1990, when 9.5% of the staff was cut, to 382 employees.

The Irvine Co. designed and helped develop most of the residential areas of Irvine, the Newport Center Fashion Island and Tustin Market Place shopping malls, and the Irvine Spectrum and Jamboree Center business centers. Recent projects include the 9,400-acre Newport Coast and 1,740-acre Tustin Ranch residential developments.

But like most Southern California developers, even the gigantic Irvine Co.--which owns a sixth of the land in Orange County--has shared in the ailments of the real estate slump. For its fiscal year ended June 30, 1991, the privately held company reported its first loss in years, Thomas said. The company will post a profit for the current year, however, he said.

“Steps we’ve taken to reduce our costs have permitted us to regain that footing and to have a successful financial year in difficult times,” he said.

For the past two years, residential land sales have been excruciatingly slow for the company. Further, its commercial properties have not offered much of a cushion: The company has been forced to lower rents at its office, industrial and retail properties to attract tenants.

Last year, the company solicited the aid of three major brokerages--Grubb & Ellis, CB Commercial and Lee & Associates--to aggressively market property in the 2,600-acre Irvine Spectrum complex. Eschewing its tradition of holding onto its commercial real estate, the company began offering some of its buildings and land for sale to leaseholders.

Sales, however, have remained “relatively flat,” said a broker who asked not to be identified.

John Bodenburg, a managing partner in the Newport Beach office of Lee & Associates, said that if the Irvine Co. is desperate to sell its commercial properties, it would lower its prices.

“They’re not having a fire sale,” he said. “Even in these market conditions, they could sell property by bringing down their prices, but they don’t want to. You have to wonder if by cutting back on their operations they’re taking a wait-and-see attitude. Apparently, they’re not so under the gun that they absolutely have to sell. The land will be worth a lot more tomorrow than it is today, so why give it away?”

Brower noted that, because the company is privately held and tight-lipped about its finances, “it’s hard to know how bad their cash-flow problems are.”

“I’m sure the cut they made last January was one they really hated to do, so they’ve got to be cutting good, core people this time around,” Brower said. “We all have bosses--even Don Bren. He has lenders saying, ‘You need to reduce some of your costs.’ ”

Indeed, Bren says in his memo that the latest layoff “is painful . . . to those of us who will say goodby to some very talented employees who have made important contributions in the past.”

Thomas confirmed that the new layoffs will be taken “throughout the company” rather than in specifically targeted departments. Most of the 60 employees terminated at the beginning of the year worked in the land development group, which has been particularly hard hit by the real estate slump.

“All of the people have not been identified,” Thomas said of those to be laid off. “I would think that they will be notified over the next few days, after the list is finalized.”

The terminated employees will receive a severance package and job placement counseling, he said.

George Spragins, senior vice president in the Newport Beach office of Grubb & Ellis, said he could sympathize with those at the Irvine Co. who have the unenviable chore of selecting another 30 or 40 people to lay off. “As a manager myself, I know how difficult these cuts must be,” he said.

Spragins said that the Irvine Co. is simply battling the same problems other real estate companies are: the overbuilding of the 1980s, high vacancy rates in commercial buildings and--most devastating--the credit crunch that has left developers with few resources for financing.

A New Lineup

Four senior officers have been chosen to head the restructured management team of the Irvine Co. They will report directly to board Chairman Donald L. Bren. One of the first orders of business for the team will be to reduce the company’s staff of 326 by 30 to 40 people.

Donald L. Bren

Age: 60

Residences: Los Angeles, Newport Beach

Position: Chairman of the board, the Irvine Co.

Responsibilities: Developing residential communities

William H. McFarland

Age: 52

Residence: Newport Beach

Position: Group president, land and residential development; corporate executive vice president

Responsibilities: Executing planned residential projects

Richard G. Sim

Age: 55