The Richest Real Estate Investor in The World (Part 2)

Commercial Real Estate Investing From A-Z

We continue the introduction to the richest real estate investor in the globe, the owner of The Irvine Company, Donald Bren.

Read the entire episode here: https://tinyurl.com/m2ehfys7

1970's

At that point, cities and the County were increasingly imposing costly demands on the developer. These demands included roads, flood control channels, parks, and schools — all of which were previously provided by the cities and the County. The James Irvine Foundation became serious about selling The Irvine Company to comply with the Tax Reform Act.

When thinking of purchasing the company, Bren combined forces with Taubman, Allen, and the others. Understanding from Bren the need to have heiress Joan Irvine Smith on their side, Taubman and Bren had decided to allow Joan Irvine Smith to become an 11% partner of the consortium, allowing her to retain partial ownership of the Company she loved after the proposed purchase — which she relished.

On May 18, 1977, Mobil bid $336.6 million. The next day, May 19, the consortium bid $337.4 million — more than one-third higher than Mobil's original offer. At noon the following day, May 20, 1977, Mobil announced that it would not attempt to outbid the consortium. The consortium was prepared to go higher. The court approved the price, declared Taubman-Allen-Irvine the winner, and the sale of The Irvine Company was completed. Therefore, 112 years after James Irvine acquired the Irvine Ranch, the company became a Michigan corporation.

The consortium purchased the company for $337.4 million. Key to the financing of the acquisition was the $100 million loan, which was assembled by a group of 9 banks. The timing of the acquisition could not have been better, as the nation came out of the 1973-74 recession, and the economy grew warm in 1976 and 1977.

1980's

In 1983, Bren made a startling move. He offered to buy out Taubman and his partners by launching his own leveraged buyout of The Irvine Company, for their 51 percent of the Company, for which they had contributed less than $100 million six years earlier, Bren offered the “Eastern” shareholders $516 million.

Determining that they had made a sizeable profit and uncertain about the future resulting from the heated “greedy eastern carpetbagger” campaign and the residential leasehold crisis, the Taubman-led easterners agreed to accept Bren’s offer. Orange County newspaper reporters tried to uncover why these astute businessmen would sell a company which appeared to have an unlimited financial future, but Taubman would only comment “My father always told me you take some and you leave some.” To his hometown “Detroit Free Press” he boasted: “This was a better deal than the Louisiana Purchase.”

But Joan Irvine Smith objected to the buyout price as being too low, and objected to Bren’s saddling the Company with a $560 million debt (the $516 million buyout plus interest due to five banks making the loan). This valued the company at just over $1B and her 11% shares at about $100M. She filed suit. With the buyout also came $560M of debt. Bren worked with First Boston Company on financing the buyout, and he worked closely with accountants Kenneth Leventhal & Company on how to make the payments. The lawsuit lasted quite a few years in the 80s and after endless months of discovery, depositions, the trial which was in Michigan (where the company was incorporated) resulted in the judge awarding her $256M including accumulated interest.

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