Philip Morris Agrees to Sell Mission Viejo Co.

One of Orange County’s pioneer developers of planned communities, the Mission Viejo Co., will be sold to J.F. Shea Co., an expanding Southern California building firm, it was announced Friday.

The deal is expected to fetch more than $400 million, although terms were not disclosed by Philip Morris Cos. Inc., which has owned the Mission Viejo Co. since 1972.

Shea will acquire about 900 acres of undeveloped land in Mission Viejo and Aliso Viejo, and 3,600 acres in Colorado. It plans to both construct homes and sell land to other builders.

Shea officials declined to comment on whether it will keep Mission Viejo Co.’s name or its 60 employees.

“It’s a significant acquisition,” said Les Thomas, president of the Southern California division of Shea Homes, the company’s home-building subsidiary. “We look at it as providing us great land resources for the future.” The deal’s greatest impact will be on Shea’s fledgling Colorado home-building operation, which opened last September. More than three-fourths of Mission Viejo Co.’s 4,500 developable acres are in the Highlands Ranch area, a huge planned community south of Denver.

“This is one of the largest transactions for a community developer since the sale of the Irvine Co.,” said Michael Meyer, managing partner of the Newport Beach office of E&Y; Kenneth Leventhal. “It puts Shea Homes on the map as a national builder.”

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In March, Philip Morris announced it would sell the real estate unit, which makes up less than 1% of its total sales, to concentrate on its core businesses of food, beer and tobacco, which are far more profitable. Rumors of a sale had been circulating since the Mission Viejo Co. stopped building homes in 1989 and began selling off land.

The sale reflects the changing expectations for Southern California real estate. During the 1970s, when the tobacco giant purchased the company, land prices were going straight up and returns were much higher than they are today.

As profit margins have thinned in recent years, many conglomerates including Mobil Corp. and Chevron Corp. have decided to shed their real estate operations.

These holdings are now being snapped up by home builders, as land has gotten increasingly scarce and expensive.

“Builders’ only hope of making anything other than a minimal margin of profitability is to go back to acquiring large land assets,” said Irvine-based real estate consultant Ken Agid.

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The Mission Viejo Co. was founded in 1963 by a partnership of billionaire real estate developer Donald L. Bren and South County landowners the O’Neill family.

Bren later sold his interest and bought the Irvine Co. Philip Morris made its initial investment in the real estate developer in 1969 and purchased the company outright in 1972 for $52 million.

Mission Viejo reported revenue of $157 million last year.

In Orange County, the company’s developments are nearly complete. Mission Viejo, a 10,300-acre project with 84,000 residents, has only 200 acres left to sell.

Aliso Viejo, a 6,600-acre community acquired from the Moulton family in 1976, is more than 80% built out. It should take two to three years to complete, said Steven Delson, executive vice president of the Mission Viejo Co.

The company’s most valuable asset is the land in Highlands Ranch, which last year was the best-selling planned development in the country.

The 3,000 acres of residential land owned by the Mission Viejo Co. should accommodate 16,000 homes and take 10 years to build out, said Bert Selva, president of Shea Homes’ Colorado division.

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Shea Homes sold 3,149 homes last year and posted revenue of $613 million from its divisions in California, Colorado, Arizona and North Carolina. This year the company expects to sell roughly the same number of homes, but expects revenue to be closer to $745 million.

In Orange County, Shea Homes is best known for developing the 2,500-home Ocean Ranch community in Laguna Niguel in the mid-1980s.

It is currently the fifth-largest builder in the county, having sold 195 homes in Anaheim Hills, Tustin and Huntington Beach in the first six months of this year, according to Market Profiles of San Diego.

Additional projects are planned in Rancho Santa Margarita and Las Flores.

“We made a decision 18 months ago to up our presence in Orange County,” Thomas said. “We will be one of the top builders in the county this year.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Mission Viejo Co. Sale

The Philip Morris Cos. is selling the Mission Viejo Co. to J.F. Shea Co. Inc. for an undisclosed amount. Details on the two firms and the assets involved:

MISSION VIEJO CO.

Headquarters: Mission Viejo

Chief executive: Craig McCallum

Business: Real estate development and management

Founded: 1963

1996 revenue: $157 million

Undeveloped land in Orange County: 900 acres, mostly in Aliso Viejo; two-thirds zoned for residential development

Undeveloped land in Colorado: 3,000 acres residential, 600 acres for commercial

J.F. SHEA CO. INC.

Headquarters: Walnut

President: John F. Shea

Business: Real estate developer, builder and manager

Founded: 1895

Subsidiary: Shea Homes

Shea Homes’ 1996 revenue: $613 million

Master Developer

Mission Viejo Co. has developed three major master-planned communities, two of them--Mission Viejo and Aliso Viejo--in Orange County and the other in Colorado:

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Mission Aliso Highlands Viejo* Viejo Ranch Size (acres) 10,300 6,600 22,000 Population 84,000 28,000 40,000 Occupied dwelling units 28,969 12,700 14,200 First homeowners moved in 1966 1982 1981

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* Planned-community portion only

Source: Mission Viejo Co., Times reports; Researched by JANICE L. JONES / Los Angeles Times