His Companies’ Projects Stretch From China to Chicago, Seattle to Baja’s Southern Tip. Critics Wonder If The Empire Makes Any Sense. But Orange County’s Master Builder is : Koll, Calm and Collected

Donald M. Koll became the envy of local developers when Taco Bell agreed to move its headquarters into his 12-story mirrored office tower near the San Diego Freeway in Irvine.

To show his gratitude, the real estate developer presented Taco Bell Chairman John E. Martin with a photo of himself in an unusual pose--crawling alongside the freeway at rush hour. During the lease-signing ceremony, Koll scribbled on the picture: “I’d crawl on my belly on the freeway to make you a deal!”

That was nearly 10 years ago. These days, the nation’s top executives are much more likely to come crawling to Koll.

An innovator and deal-maker extraordinaire known for alliances with financial partners such as Aetna and Transamerica, Koll heads a Newport Beach-based real estate empire of companies that includes the second-largest manager of properties in the United States.

His mushrooming group of intertwined firms operate a string of gleaming office buildings and ritzy resort projects that stretch from China to Chicago and from Seattle down to the tip of Baja.

Called the “Teflon Man” of real estate, Koll, 62, outlasted critics who predicted his 30-year-old development empire would come tumbling down when property values in Southern California collapsed during the real estate depression of the early 1990s.

He survived because he had little of his own money in his investments, and because he expanded his existing property management division into a nationwide operation. He also raised cash by selling stock in the property management operation.

Koll has not always had a golden touch. An alliance to build office towers with controversial Columbia Savings & Loan Assn. was a financial loser; one mega-project to buy 15,000 acres from the Union Pacific railroad collapsed because of inadequate financial backing.

In addition, Koll’s current plan to build 3,300 homes on sensitive wetlands in Huntington Beach is mired in controversy and has made him the target of bitter personal criticism.

A grandfather of 13 who has made Forbes’ list of the 400 wealthiest people in the country, Koll keeps a low profile in Southern California, living quietly at his home on Lido Island in Newport Beach and spending time at his resorts in Mexico.

Unlike Donald Bren, the land baron who runs Orange County’s Irvine Co. with an iron hand, Koll is known to subordinates as an easy-going and upbeat manager who runs a very decentralized operation.

While Koll has operated in Bren’s shadow, his growing operations have made him a force to be reckoned with nationwide. He is probably better known in the rest of the country than he is in California, his employees say.

Now, Koll is once again redefining his business and trying to make possible in real estate what Sam Walton, founder of Wal-Mart, did for retail--one-stop shopping. By creating a network of companies that can solve a corporation’s land needs around the world at a low cost, Koll wants to be the global real estate services provider to Fortune 500 companies.

“The real estate industry was fragmented and unorganized. And I think that’s what we’re really doing, we’re organizing it into a one-stop shop,” Koll says. “If a guy wants to build a plant in Mexico, we’ll find the land, we’ll build the building, we’ll finance it and we’ll lease it to him. Same thing in China. That’s service.”

Some, however, question whether Koll is the model for development companies or just a rudderless enterprise with too many projects in too many places. Others wonder whether it has become dangerously large. Some ask if a company road map exists at all.

“What real estate business is Koll not in these days? They are doing everything you can imagine,” says Louis H. Masotti, director of the real estate management program at UC Irvine. “You begin to wonder if there is some magician inside Koll who knows how to manage everything, everywhere. Maybe they can afford buying a company a week, but what is the overall strategy? How does it get synthesized so they aren’t fighting 17 different wars on 17 different fronts?”

Koll sees no confusion. He is the one steering the Koll ship, he says, and he is doing it, along with his right hand man and heir-apparent Ray Wirta, “quite carefully.”

In fact, Koll is on a rapid buying binge, having purchased seven companies in the past year, including Kathryn Thompson Co., a major local home builder. Currently on his development plate are an airport for Mexico City, a massive convention center in China and the 3,300 new homes in Huntington Beach.

His empire, with more than 3,000 employees nationwide, rests on four related companies: a firm known only as Koll, the “full-service” real estate firm which includes the property management division; Koll Real Estate Corp., a publicly traded land owner and development company which has 70% of its assets mired in Bolsa Chica; Koll Construction, the building arm, and Koll International, which develops resorts in Mexico, including the 1,800-acre Cabo del Sol and 900-acre Palmilla in Baja.

“I like to keep everything in little pieces,” Donald Koll says. “Little companies. Even the biggest company, our property management company, has some little pieces to it.” He says that even though he is often traveling in Mexico, he keeps track of his real estate kingdom by delegating authority.

“We have great people and each one runs their little show and reports on how they do,” says Koll. “So, it’s easy figure out who’s winning and who’s losing. And if a guy’s losing too much, then you gotta have a chat with him and figure out what’s going on.”

While some real estate specialists questioned whether Koll might be too optimistic about the future of global real estate markets, others hail him as an innovator and trendsetter.

“Visionaries, as Jonathan Swift said, are people who can see things invisible--and Don Koll is proof of that,” says Sanford Goodkin, a real estate consultant in San Diego.

Because fewer institutions hold more and more of the world’s real estate, Koll could have perfect timing, positioning his companies to reap a healthy windfall of profits, Goodkin says:

“If you are a corporation with real estate needs either here or in Asia and the first name that comes to your mind is Koll because you’ve seen it so damn much, and it’s an American name, a name of integrity, well, it’s clever what they are doing.”

Clever real estate dealings have been in the Koll family for generations.

In 1889, Koll’s grandfather, August, founded A.J. Koll, a lumber business in Los Angeles. Koll’s father, Milton, took over the business, and Koll’s brothers and cousins all worked in their own real estate related-business, sometimes building apartments or other projects.

“I might have gotten this business by osmosis,” jokes Koll.

Milton Koll died just before his son’s first year at Stanford University, and the lumber company was later liquidated. After Koll graduated with a degree in economics, he joined the Air Force to fly jets. When he was 22, Koll married Dorothy Brittingham, whose great-grandfather was a governor of Chihuahua, Mexico.

At 25, Koll came to Orange County where he joined a cousin in building houses, including a custom home in Newport Beach for actor John Wayne. In 1962, after working four years for his cousin, Koll struck out on his own, and with just $1,000 formed the Koll Co., a general contractor. One of his first projects was for Knott’s Berry Farm amusement park, where he built the log ride and the replica of Independence Hall.

Calling Koll “a great friend of mine and an aggressive, friendly competitor for 40 years,” Bren praised Koll’s recent projects, especially his large resorts in Mexico, and predicted his one-stop shopping plans will be successful.

Koll, who is a director of the Irvine Co., got a big break in 1967 when Bren sold him 100 acres near John Wayne Airport, where he built his firm’s first big development success, the Airport Business Park.

In 1972, along with joint venture partner Aetna, Koll bought another 125 acres along MacArthur Boulevard, which Koll developed into a large office tower project.

Koll, known for his love of the deal, has built his firm with other people’s money--usually joint venture partners with deep pockets.

Koll not only prospered during the early 1980s, but also survived the real estate downturn by finding partners to put up cash for projects. Koll would provide the real estate expertise and the two typically would split the profits.

“He knows how to manipulate money,” says Alfred Gobar, a real estate consultant who has known Koll for more than 30 years. “He’s pretty adept at using other people’s money. And not always to the partner’s advantage, like Columbia Savings & Loan.”

Once one of the nation’s most profitable thrifts, Columbia sustained major losses on its office tower projects with Koll when the real estate market soured. It later failed largely because of its huge investments in junk bonds.

“We typically have a joint venture partner that puts up the money and takes the liability,” Koll says. “In that case our financial partner went broke. It didn’t have anything to do with us.”

Another deal--plans to buy 15,000 acres and 30 buildings for $532 million from Union Pacific Corp.--fell apart in the early 1990s when Koll couldn’t come up with the promised cash because a financial partner backed out.

Although Forbes magazine in 1987 said Koll was worth about $300 million, he disputes that figure, saying the magazine included the gross value of his land holdings but not the mortgages. But he won’t reveal how much he has, or what percentage of his net worth is in his companies. (He has also since fallen off the Forbes 400 list.)

He owns 100% of the Koll Co., the holding company. He also owns 48% of the operation known as Koll, once known as Koll Management Services Inc., the property management firm. Freeman Spogli & Co., a Los Angeles investment banking firm owns another 48%, and employees own the rest.

Now, Koll (the company) is the second-largest property manager in the nation. With about 150 million square feet under management and an investment portfolio worth $2 billion, the company plans to provide real estate services around the world. Just recently it purchased a stake in a Jakarta, Indonesia, real estate company.

Once a public company, Koll went private in November, 1994. Since then, it has taken its $50-million line of credit and purchased five companies for about $17 million, including a major property manager in Chicago.

“I’d say we had a lot of acquisitions, but it’s not any different than Bank of America acquiring Security Pacific,” says William S. Rothe, Koll company president and a former head of BankAmerica’s real estate operations. “It’s part of consolidations in the industry.”

Rothe says the company is trying to get as big a market share as it can. When asked if the company could get too big, he paused: “I don’t know, ask General Motors. . . .”

Another Koll-related company with dreams of growth is Koll Real Estate Group, probably embroiled in the most controversial of Koll projects.

Trading under the Nasdaq symbol KREG, the stock for Koll Real Estate has sold for less than a dollar a share for longer than anyone at the company’s Newport Beach headquarters cares to remember. The stock closed Friday at 34.4 cents a share.

But company President Richard M. Ortwein isn’t worried.

KREG--which has about 70% of its $423 million of assets sunk in a controversial swath of 1,600 acres of Bolsa Chica wetlands--is poised for rapid growth, he says.

Although KREG posted an $18-million loss in 1994, the land-rich company is just positioning itself for the real estate turnaround, company officials say. Once homes are built and begin selling in the 580-home project the company owns in Escondido and its 150-home community in New Hampshire, KREG will bloom, Ortwein says.

Having already developed $6-billion worth of office towers and business centers, KREG is going global with five projects in China, including a large industrial project on 400 acres in Tianjin near Beijing.

The future of KREG really hinges on whether it can successfully develop its “company jewel,” the sensitive wetlands of Bolsa Chica, which sits only about 10 miles from company headquarters.

“We’ve certainly created a balance between economic growth and environmental sensitivity,” says Ortwein. “Bolsa Chica is the most challenging project in California, and we’re getting it done in a professional way.”

In April, the company had a major victory, when the Orange County Board of Supervisors approved its plans to build the 3,300 homes and set aside 1,100 acres for restoration. The plan must still clear federal and state regulatory agencies.

And KREG faces a tough battle from angry environmentalists who have been fighting development of the Bolsa Chica for more than 20 years.

“This is a company that is very comfortable with lying to the public,” says Gordon LaBedz, who heads the Bolsa Chica task force for the Surfrider Foundation, “someone who is going to destroy wetlands and do things that other developers wouldn’t touch with ten-foot pole. It’s a niche in the market, but so is bank robbing.”

“That’s absurd,” replied Lucy Dunn, senior vice president for Koll Real Estate Group, “If you don’t agree with them, you are lying. They are making it very difficult for this community to get closure and do the right thing for Bolsa Chica.”

LaBedz says environmentalists fear that Koll will not make good on plans to restore the wetlands because the company simply doesn’t have the available funds for the project.

Koll has acknowledged that it does not have the cash on hand to pay for wetlands restoration, and says under the recently approved proposal the company will sell lots or homes to pay for the restoration effort. Koll is also in talks with the Port of Long Beach and Port of Los Angeles about buying as many as 500 acres from Koll and then restoring the wetlands.

If the Bolsa Chica development plan wins final approval, Koll hopes to start work there by late 1996. As a result, Koll has entered the home-building business, buying Kathryn Thompson Co. and forming a joint venture with the Akins Cos., another major Orange County developer.

“Whether we planned it that way or not, we are in the residential real estate business,” says Ortwein. “And I think it will be very, very successful.”

Koll started his career building homes in Orange County. Now, with his recent push into home building, he’s come full circle. “It’s back to where I started,” he said. “And I think it’s going to work out fine.”

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Spanning the Globe

Donald M. Koll’s real estate empire, based in Newport Beach, is a network of companies--mostly private--that own, build and develop properties in the United States, Latin America and Asia.

Koll Co.: The parent holding company. Owned 100% by Donald Koll.

Koll Construction: A wholly-owned subsidiary of Koll Co. Specializes in building facilities for the health care, entertainment, telecommunications and gambling industries. Recent projects include a virtual reality casino in Las Vegas, medical buildings in Orange County and telecommunications facilities in Maryland. Reported $325-million in revenue for the year ending March 31. Profitable, but Koll will not release numbers. Has 220 employees.

Koll Real Estate Group: A publicly traded company that specializes in obtaining entitlements for land it owns and developing it. Major asset is Bolsa Chica wetlands--1,600 acres in Huntington Beach where Koll plans to build 3,300 homes. Recently made moves into home building by acquiring and forming joint ventures with two companies. Also has projects in Mexico. With assets of $423 million in its last fiscal year, the company reported an $18-million loss. Has 120 employees.

Koll International: A wholly-owned subsidiary of the Koll Co. Made up of Koll Resorts International and Koll International Commercial. Develops real estate in Mexico, including two resorts--the 1,800-acre Cabo del Sol and the 900-acre Palmilla resort in the Los Cabos area at the tip of Baja California. Also building industrial parks and office buildings in major cities in Mexico. Has about 50 employees. Privately held and profitable, according to the company.

Koll: A full-service real estate company that provides property management, corporate facilities and investment advice for such firms as Hughes Aircraft, AT&T; and Sun Microsystems. Currently manages a portfolio of 132 million square feet in 200 cities spread among 26 states; its buildings have more than 12,000 tenants. Also manages an investment portfolio worth $2 billion. Donald Koll owns a 48% stake, as does Los Angeles investment bank Freeman Spogli & Co., with the remaining 4% held by management. Has 2,700 employees.

Source: Koll Co.