Longtime Bren Ally McFarland Joins Real Estate Investor
McFarland: Post-Irvine Co. life includes Internet bid, a home in Maui and joining a real estate fund manager.
By DANIEL D. WILLIAMS
Since leaving The Irvine Company nearly three years ago, William H. “Bill” McFarland has tried his hand at the Internet, traveled the world, golfed and, when his knees have held up, played tennis.
Spending nearly 15 years with the Irvine Co. and 22 years with its chairman Donald Bren has afforded McFarland the good life.
“My wife and I are building a house in Maui,” McFarland said. “I guess I just can’t get too far away from real estate.”
Last month, McFarland joined the board of Newport Beach-based real estate investor Cornerstone Ventures Inc. He joins another Orange County real estate hand, Robert C. Peterson, executive vice president of Koll Bren Schreiber Realty Advisors, on Cornerstone’s board.
The firm manages The Cornerstone Realty Fund LLC, which invests in small industrial buildings in Southern California, the Midwest and the East Coast. It counts about $50 million under management.
Cornerstone’s backers include wealthy investors and bond fund managers looking to hedge their portfolios with real estate investments, according to Terry Roussel, Cornerstone’s founder and president.
Cornerstone is different in that its fund uses all cash to buy properties.
“It’s a unique concept,” McFarland said. “It’s contrary to the way real estate developers typically think, because there’s no leverage. People think, ‘Gee, that’s not real estate.'”
The strategy is a conservative one, according to McFarland. The firm takes on all the risk of its investments, but isn’t on the hook to a lender.
But Cornerstone also foregoes the bigger bang that leveraging can bring. In the past four years or so, the company bought $42 million worth of property and later sold it for $55 million,a 30% gain overall, or about 7% on a yearly basis. The firm also sees cash from rental operations.
Individual Cornerstone investors might plunk down anywhere from $6,000 to $600,000, company officials said. Roussel and McFarland declined to mention who some of the fund’s investors are. OC developer Donald Koll was an early Cornerstone backer but isn’t involved with the fund today.
Roussel founded the firm 13 years ago as Koll-Cornerstone, reflecting developer Koll’s early involvement. For about a dozen years, Cornerstone raised money from private investors. In August, the firm opened up to bond managers in a bid to build up the fund.
Since then, Cornerstone said it is seeing a steady stream of about $1 million to $2 million in new investment money per month. Before opening up to institutional investors, the fund saw anywhere from no new money per month to as much as half a million.
The firm has pegged three areas for its investments: Los Angeles and OC, northern New Jersey and suburban Chicago.
“These are the three largest and top-performing industrial markets in the U.S.,” in the past two decades, Roussel said. “There’s 3 billion square feet of industrial space in those three markets.”
The downturn in the industrial sector does hurt Cornerstone, McFarland said. But it’s also a good time to buy, he said.
The firm said it looks for buildings that aren’t full and where rents are below the market rate. Cornerstone often buys properties from banks, insurance companies, pension funds and real estate investment trusts.
“These properties are managed at the corporate headquarters level from far away,” Roussel said. “Inefficiencies accrue and we identify those inefficiencies.”
The firm looks for buildings where it can raise rents to market levels. Cornerstone risks losing tenants in a market awash in space, but officials say it’s a calculated move. Before buying a building, McFarland said Cornerstone evaluates the likelihood of losing tenants as well as the ability to lure new business.
During his career, McFarland has overseen the development of more than 40,000 homes and apartments, the majority of that with the Irvine Co.
For much of his career, McFarland was part of Irvine Co. owner Bren’s inner circle. At one time, McFarland was chief executive of Bren’s separately run homebuilder Bren Co., now California Pacific Homes.
McFarland’s resume at the Irvine Co. is long. He was a company executive vice president and a director for years. He also was chief executive of Irvine Community Development Co., the residential community developer that largely shaped the city of Irvine and other areas.
In 1997, McFarland took over Irvine Apartment Communities, which was spun off from the Irvine Co. in 1993 and taken private again in 1999. McFarland helped shepherd the buyout of the apartment developer and operator after Bren concluded he could better finance the operation through Irvine Co. sources than public markets.
McFarland oversaw an expansion of Irvine Apartment Communities beyond Irvine.
“We really ramped up the off-ranch acquisitions and development, particularly in the Bay area and San Diego,” he said. “We acquired the land to develop several thousand apartments units.”
After Irvine Apartment Communities was folded back into the Irvine Co., McFarland said it was “a good time for me to move on.”
Sources said he left on good terms.
McFarland said he still watches the OC apartment market from afar.
“It looks like the market has slowed some, vacancies up a little, and rents are not increasing as rapidly, but this is not a market with big problems,” he said.
Since leaving the Irvine Co., McFarland said he’s taken part in some housing projects in the Bay area and in OC. He’s been on the board of Newport Beach-based William Lyon Homes for a year now.
In 2000, McFarland got into the Internet game, albeit late. He was one of several investors including Henry Segerstrom who backed Costa Mesa-based RE3W Inc., which looked to take much of the paperwork for commercial real estate deals online. It hasn’t amounted to much.
McFarland also is a founding member of the Tech Coast Angels, a loose affiliation of individual venture capital investors.
While McFarland spent most his career in residential real estate, he sees himself as a good fit at Cornerstone. At the Irvine Co., he had a hand in industrial and other commercial projects, he said.
