Real estate has created immense riches for Orange County’s wealthiest—and equally spectacular crashes.
The current industry downturn has brought its share of casualties, with lender takeovers of projects and bankruptcies for others.
Even the strongest are struggling with lower valuations for their holdings, empty space and discounted rents.
Yet, as bad as this downturn has been, it seems endurable compared to prior crashes.
“I don’t think this (downturn) has had the same effect as in the 1990s,” said Martin Brower, a longtime area real estate journalist and former Irvine Company executive.
Chalk it up to lessons learned: Many local real estate owners and developers survived earlier crashes—in some cases, just barely—making them better equipped for the current one.
This time around, a developer’s lenders are likely to feel the pain as much as the developers themselves. Most developers have learned how to better minimize personal liabilities when putting together financing for projects.
Earlier downturns fell on what was more of a Wild West market for real estate here, where developers were seen as the cowboys of the business world, according to sources and a look back at the pages of the Business Journal from the 1990s.
Deals often were structured to make a developer a big profit—or just as big of a loss, Brower said.
With things went south, the very survivability of some developers was in doubt.
This quote from a 1990 Business Journal article is telling: “Success in the 1990s will be a matter of ego or survival. The independent developer will need to restructure his modus operandi or perish.”
Few local commercial real estate developers survived the 1990s crash, said Igor Olenicoff, president of Newport Beach’s Olen Properties Corp. in a Business Journal interview last year.
Others, including Don Koll and Santa Ana’s Mike Harrah, went on to rebuild their real estate empires.
Harrah, who runs Santa Ana-based Caribou Industries Inc. and is the biggest real estate owner in the city, filed for bankruptcy in 1990.
A big Lake Havasu deal that went bad pushed him to the brink.
When the bubble burst, Koll, one of the county’s formative developers, turned to the “less glamorous, but profitable” property management business to keep going, according to a Business Journal story from the time.
He also went on to develop in Mexico and China.
The 1990s downturn has one parallel to today: bad loans.
The savings and loan crisis that started in the late 1980s and played out in the early ’90s nearly devastated commercial real estate and homebuilding here.
On top of that came the collapse of the aerospace industry, as cutbacks in defense spending took their toll on the region’s prime source of high-paying jobs.
Olen was lucky to survive the early 1990s real estate crunch, according to Olenicoff. He said he was prepared to hand back keys to many buildings during the bleakest days of the 1990s downturn.
One Olen-backed portfolio tied to some $140 million in loans filed for bankruptcy in 1992. The lender, Prudential Insurance Co., sued Olenicoff personally, he said.
Olenicoff said he just managed to survive the crisis, through a combination of hard work and tough negotiations with lenders, including Prudential.
The lessons learned from that episode are one reason Olen opted not to overburden itself with debt during the real estate boom of the 2000s, he said.
George Argyros, owner of Costa Mesa-based Arnel & Affiliates, said he made it through what he called the local real estate “depression” of the early 1990s thanks to a diversification, which involved adding more non-real estate investments to his holdings.
Moves included the mothballing of two local homebuilding companies he owned—Brighton Homes and Arnel Homes—while investing more in healthcare, telecommunications and data processing companies through his Costa Mesa-based investment firm Westar Capital LLC.
“We’ve taken our hits (in real estate) like everybody else,” Argyros told the Business Journal in 1994.
At the time, Argyros owned about 5,500 apartments, plus about 2 million square feet of office and retail space, according to the Business Journal’s figures.
Tellingly, that figure’s remained largely the same in the past 16 years, while his stock and other investments have grown.
Gen. William Lyon, a homebuilding giant for decades, saw his empire reduced to rubble in the 1990s downturn.
Back then, lenders took over virtually all of the assets of then-private William Lyon Co. as he doggedly worked through the disaster without resorting to bankruptcy.
“I’m not a quitter,” Lyon told the Business Journal in 2000. “I’ve never walked away from anything in my life.”
Lyon’s current company, Newport Beach-based William Lyon Homes Inc., was formed afterward, when he combined his resur- gent private company with the floundering, publicly traded Presley Cos. of Newport Beach.
Burdened by debt and Inland Empire land worth less than when it was acquired in the late 1980s, Presley itself flirted with bankruptcy in 1998.
The deal boosted the combined company’s financial position and added valuable OC land to its holdings, while William Lyon Homes retained tax credits from Presley’s years of losses.
By the time Lyon took his company private again in 2006—just before another housing downturn took hold—the builder was valued at close to $950 million, and Lyon was believed to be a billionaire.
Now, following a few lean years of earning for the builder, his wealth is estimated to be $775 million.
A similar story played out for two brothers, Al and Jim Baldwin, who made fortunes putting up homes in Anaheim Hills, Rancho Santa Margarita and elsewhere before their Baldwin Cos. went bankrupt in 1995.
Now the Newport Beach brothers run Otay Rancho Co., which is developing homes on 5,300 acres in Chula Vista.
