College Buys $5-Million Stake in Irvine Co. as an Investment : Real estate: Purchase by Claremont McKenna was part of minority interest held by a company director.
In an unusual investment move, Claremont McKenna College, a tiny, private liberal arts school near Pomona, has purchased a $5-million stake in Irvine Co., Orange County’s largest landowner.
Earlier this year in a confidential prospectus sent to potential investors, Howard P. Marguleas, an Irvine Co. director since 1977, said he was selling his 5.05% minority stake in the privately held company--shares for which he was seeking about $94 million--to raise money he needed to meet other obligations.
Marguleas is former chairman of Sun World International, a Bakersfield-based agricultural giant that filed for bankruptcy protection in October. To raise funds quickly to help resolve related financial problems, Marguleas is offering to sell his Irvine Co. stock at 19% below its estimated value of $112 million, or $617,000 a share.
Claremont McKenna College’s purchase represents just over 5% of Marguleas’ stake. As a minority shareholder, the college will not have any say over Irvine Co. operations because it does not get voting rights.
The college, in the city of Claremont, used a portion of its $250 million of invested endowment funds to make the purchase, officials said.
Investment bankers said that other institutions with endowment funds, particularly other schools, have shown interest in buying the rest of Marguleas’ stake.
Although Marguleas would not say, real estate industry observers have speculated that Irvine Co. Chairman Donald L. Bren, who now owns 92% of the company, also might step in to buy some of Marguleas’ remaining shares.
“This is the first” of several anticipated sales of Marguleas’ shares, said Mike Danzi, managing director of the Danzi Capital Group in Newport Beach. “Claremont has a great investment track record and knows Orange County very well.”
Jack L. Stark, president of Claremont McKenna, called the purchase a “good long-term investment. We think in the future real estate is going to do much better, and we believe in the long-term future of Orange County.”
Formed in 1946, the undergraduate college has only 870 students, but its 30-member board of trustees includes such financial heavyweights as Robert A. Day, founder of Trust Co. of the West, a $50-billion-asset money management firm in Los Angeles; David Fisher, chairman of the Capital Group of Los Angeles; Peter K. Barker, a partner with Goldman, Sachs & Co., and investment bankers George Roberts and Henry Kravis.
“One of the reasons we’ve done well in terms of investments is that we have quite a financially sophisticated board,” Stark said.
The college’s endowment investments have posted annual returns on capital averaging 16% in the past 10 years, Stark said.
Still, using endowment funds to make long-term real estate purchases is unusual, analysts said.
“This is not common. I haven’t seen endowment funds used for real estate investments. It doesn’t give them a lot of liquidity,” said Greg Lubushkin, a partner with accounting firm Price Waterhouse in Costa Mesa. “Because it’s a small stake, they may be interested in diversifying their portfolio.”
Irvine Co. is owner and developer of the Irvine Ranch, a wide tract of land that stretches from the ocean to the mountains in Riverside County. With a net worth of about $2.3 billion, according to Marguleas’ prospectus, the company owns two hotels, two golf courses and several shopping centers.