BIRTCHER : A Dynasty in Development

LAGUNA NIGUEL â€”  From a rise just before Birtcher headquarters, you can see a valley spread out like a map. The hillsides have been denuded by bulldozers and off to the right, new houses crouch cheek by jowl, so close you can almost reach out the living room window and touch a neighbor’s wall.

Hardly the place you would expect to find one of the nation’s largest real estate developers. But Birtcher has always done things a little . . . differently .

Most Orange County land barons prefer the sleek glass office buildings and fashionable addresses of Irvine and Newport Beach. But the Birtcher family runs its $3-billion real estate empire from an unassuming collection of low-slung buildings across the street from a shopping center in a fairly new suburb.

There are other differences. Many of the county’s new rich like to make splashy donations to the arts. But the Birtchers’ biggest contribution went to the Catholic Church.

This prosperous suburban county tends to lionize the flamboyant entrepeneurs who built its vast subdivisions, office towers and factories as celebrities and conservative folk heroes. A few of them, like Donald L. Bren, whose Irvine Co. owns thousands of acres, and William Lyon of the Lyon Co., the nation’s largest home builder, are among the richest people in the country.

But the Birtchers still live quietly in a family compound on a hillside in San Juan Capistrano with a stable full of prize horses, a flock of noisy tropical birds and a replica of a 17th-Century French manor house. Until recently, few people, even in Orange County, had ever heard of them.

That’s because there aren’t any Trump Towers in the Birtcher portfolio. Instead, Birtcher built itself one modest piece at a time. Safe. Deliberate.

“We think in terms of the long run,� says Baron Birtcher, one of the third generation of Birtchers running the family-owned firm. “This is still a pretty conservative company, and as we get older, we get more conservative right along with it.�

Until recently.

Now Birtcher finds itself on what may be the cutting edge of a new--and some say disturbing--trend after Birtcher sold half its development and construction business to the Japanese trading firm of Mitsui & Co. Ltd. for more than $100 million.

It’s the first time that a Japanese company has bought into a large U.S. real estate developer, and some experts say it signals a major shift in the way that the Japanese are investing in U.S. properties.

Birtcher history consists of a few decisive moments and a couple of lucky breaks.

The Birtcher family had been around Santa Ana without making any great noise since 1907, when Justus Birtcher of Philadelphia arrived in the small farming town and began building houses. Fayette E. Birtcher, his son, started the company in 1939, just a few years before the real estate boom that exploded after World War II.

Fayette Birtcher studied entomology in college but quit during the Depression and took a job selling crop-spraying services to farmers. When the farms began to go under, he joined the banks to buy the land cheap. After the war, he cleared the orange groves and built houses.

Birtcher plodded along as a small family company for its first 30 years. Then in 1970, it hit the big time: Southern Pacific Railroad selected Birtcher to help develop its huge real estate holdings. Suddenly, Birtcher found itself all over the country, constructing all sorts of buildings.

The family, meanwhile, evolved with a curious mixture of Midwestern values--family, hard work, religion--and Southern California glitz--pursuing exotic and unusual business ventures.

The hard work begins early. The male Birtchers spent their summers laboring on the company’s construction sites as teen-agers, a fact they like to mention to interviewers. The generations have another thing in common: Energy and an eye for making a buck.

Fayette Birtcher--the family calls him F.E.--was into dry cleaning and owned a skateboard factory. According to family legend, his oranges were among the first made into concentrated orange juice, and in another aside, he introduced the pepper mill to the United States from England.

Fayette Birtcher, now 82, retired in 1965 after a heart attack. His sons, Ronald E. Birtcher, 58, and Arthur B. Birtcher, 51, have been co-chairmen of the real estate concern for years. Ronald’s sons, Brandon, 36, and Baron, 30, serve as general partners.

But the family’s interests range beyond real estate.

Ronald Birtcher also owns one of the largest date-farming operations in the nation, employing 200 people. He is one of the largest U.S. producers of the protea, a tropical flower, and he also owns a vineyard in the Napa Valley, although he doesn’t drink.

His brother, Arthur Birtcher, raises and trains hackney ponies for a largely Eastern establishment sport in which the animal is trained to pull a cart in a high-step gait. A decent hackney pony goes for around $100,000 these days: he owns seven of them. The French manor house at the family compound is his, as is the stable out back and another stable, now converted to hold dozens of horse-show trophies.

Arthur is also active in the Catholic Church. He and his wife recently pledged $15 million to the Catholic Church’s Papal Foundation, which helps fund the church’s religious and diplomatic missions around the world.

Not surprisingly, the family compound is called Rancho de Dios, or “God’s Ranch.� Arthur’s manor house is barely an arm’s length from his father’s modern one-story house, which nestles up against Ronald’s California ranch house in the family compound.

The youngest generation also has developed other interests at the urging of their father.

“I get ideas for new business everywhere,� Ronald says. “I’ll be lying on a beach somewhere and a guy comes by selling straw hats, and I start to think how he could sell more hats, what he could do to market them better. And that’s what I tell the boys: ‘I don’t care how you relax, but be creative.�’

So Brandon, called Brandy, is an investor in a theme park in the Colorado Rockies called Liberty Park, which he said is devoted to glorifying “American history, free enterprise and the capitalist system.�

Michael H. Voss, Birtcher’s president and the highest-ranking non-family member, said “the sense of continuity� provided by the various generations of the family is what makes makes Birtcher different.

“Most real estate development companies survive only for the life of the entrepreneur who started them,� he says. “We have a number of additional generations of Birtchers to draw on.�

A Different Decor

A fire crackles in the big fireplace in Ronald Birtcher’s spare, uncluttered office despite the summer heat outside. African masks glare down from the wall. Across the hall, where a Rodin sculpture of a naked man gazes over the secretaries’ heads, is his brother’s office, exactly the same size but decorated with antiques.

He is talking, a little wistfully, about the changes at the company over the years.

“I like to think there’s a family feeling at this company,� Ronald says, “but when you get as big as we are, I think there’s less and less of that.�

The parent company and the partnerships that do the actual developing now employ 605 people in 11 offices in the West and in Washington. The family began bringing in outsiders for top jobs like the presidency in the mid-1980s. The brothers created a board of directors and invited their new managers and partners to sit on it.

All the changes tended to make the company more of an institution and less a family business--insuring that Birtcher wouldn’t be dependent on any one individual to survive. But each change loosened the family’s grip just a little and made the place just a bit more impersonal.

One thing, however, hasn’t changed: The Birtcher conservatism. The family keeps what it builds, and unlike some developers it doesn’t like to borrow on its holdings for the next project. Instead, the family likes to spread the risk around by bringing in a rich partner--an insurance company or a pension fund awash in cash and looking for a profitable place to park it--who puts up most of the money to build a project while Birtcher contributes its expertise. There’s less profit that way, but also less risk.

“I’d say I’m a chicken,� Ronald says. “We’ve been a very low-risk company. We haven’t been the kind of flash-in-the-pan developer you’ve seen in Southern California in the last few business cycles.�

The Birtchers don’t like to put all their eggs in one basket, either. At one time, the company was the largest developer of mobile home parks in the country. It isn’t even in that business anymore. Then Birtcher built one of the first business parks in what would become famous as the Silicon Valley.

In 1972, with Southern Pacific, Birtcher built the Pacific Design Center in Los Angeles, the “Blue Whale,� named for its mammoth size and blue-glass exterior. The place had 700,000 square feet where buyers could visit designers of home furnishings. Despite some doubters, the place eventually filled up, and now Birtcher has a flourishing business in building specialty marts.

The projects, once modest, began to get bigger. By the 1980s, Birtcher was spiking the Orange County skyline with the same 15-story glass office towers as the big boys.

This year--its 51st anniversary--the company is ranked the 19th-largest U.S. developer based on National Real Estate Investor’s reckoning of the amount of square footage that the company is building. Intensely private, Birtcher will say little about its internal financial workings or the size of its holdings. But it’s clear that the company has made the Birtchers very rich.

The firm also has made it clear that it is thinking globally. In May, the company said it had reached an agreement with Liberia to build a $300-million dam for a hydroelectric project. The Birtcher construction company would build the project--its first abroad--in conjunction with Anaheim-based Arciero Brothers Inc., although prospects for the project have been dampened by the civil war in the West African country.

Birtcher also has an eye on Eastern Europe, and it has done business with several large Japanese companies. One of the new financial partners attracted to Birtcher is Mitsui, the huge Japanese conglomerate.

A Big Partner

Mitsui is an even more venerable company than Birtcher. It was founded in 1876, and three years later it opened a New York office. It is now the world’s oldest and largest trading company: It makes plastic parts, computer chips, additives for animal feed, canned seafood and other products. It is tied to one of Japan’s largest banks. And it is also Japan’s largest real estate developer.

Japanese companies like Mitsui began investing heavily in U.S. real estate around 1986. The strength of the dollar against the yen made U.S. products--and real estate--seem cheap to Japanese investors. They could borrow money at lower interest rates at home and they were satisfied with smaller returns than the average American developer expected.

The Japanese, too, buy in order to hold their property over a long time, not to wring tax breaks out of it and then turn it over in a few years, as is often the case with American investors. In the last few years, they have spent billions buying part or all of such landmark buildings as Rockefeller Center in New York and the Arco Plaza in downtown Los Angeles.

At first, like most Japanese buyers, Mitsui simply bought buildings. Recently, though, the Japanese have become financial partners with American developers in constructing new buildings. It’s often cheaper and more profitable than buying an existing building, although there is more risk.

About two years ago, Mitsui decided to take a giant step in real estate: It proposed to buy part of Birtcher. Instead of just buying buildings in the United States, Mitsui would actually build them. It is now the only Japanese company that owns a chunk of a big American developer.

From Birtcher’s point of view the deal made sense. It takes a lot of money upfront to build a big office building or redevelop an aging downtown neighborhood. There are deposits to tie up land, the cost of getting the necessary permits from local officials. And conservative Birtcher sometimes wasn’t willing to borrow those big sums. Mitsui is a partner with a big checkbook willing to sign its name.

Two weeks ago, Mitsui announced that it was putting up more than $100 million--nobody will say how much was cash--to buy half of Birtcher, excluding the millions of square feet of buildings already in the Birtcher portfolio. But the deal includes all the projects that Birtcher is working on now--more than 31 of them.

The long-range impact of foreign real estate investment in the United States worries some Americans, who wonder if America isn’t mortgaging its future to the British, the Canadians, the Dutch, the Japanese and other foreign investors.

But the Birtcher deal is unlikely to be the last one, as more Japanese companies start down the trail blazed by Mitsui.

“For one thing, it’s a lot more politic for a Japanese company to enter the market by backing highly thought of domestic developers than purchasing property outright in the company’s name,� says Michael Meyer, a managing partner at real estate consultant Kenneth Leventhal & Co., which worked on the Mitsui deal. “Japanese companies are sensitive to the backlash.

“And this puts Birtcher in a uniquely strong position because there are tremendous opportunities to acquire and develop property for those who have access to the capital markets.�

Ironically, Mitsui liked Birtcher because its familial, consensus-style of management resembles Japanese management practices. But some things, it seems clear, will change at Birtcher--the company will become less and less like the small family business it once was.

There’s a new board--which outranks the old one--with six people on it: three Americans and three Japanese. Mitsui eventually wants to put some of its own people into line jobs at the company so they can learn the business. But aside from its new financial muscle, Mitsui hastens to add, the company won’t change much.

“It’s an American company, and it will be run 100% by Americans on a day-to-day basis,� says Hiroyuki Sato, a senior vice president at Mitsui USA, the trading company’s U.S. subsidiary.

Still, it’s possible that succeeding generations of Birtchers won’t even run the company that bears their name. The elder Birtcher brothers had already begun backing off from day-to-day management of the firm even before the Mitsui deal, company insiders say.

Brandon and Baron, asked about stepping up to succeed their elders, are noncommittal.

A high-ranking executive says they may have already come to terms with the changes. “Brandy and Baron recognize it as an end of a chapter,� says Robert M. Campbell, a senior partner who has been with Birtcher since 1974. “This is an emotional time for the family because this is a big change.

“But all of us are absolutely convinced this is the way to go. This is the best thing for the company.�

BIRTCHER: CORPORATE CLOSEUP

HEADQUARTERS: Laguna Niguel

BUSINESSES: Developer, investment advisor, property manager

BRANCH OFFICES: Irwindale, Los Angeles, Ontario, Palm Desert; Denver and Colorado Springs, Colo.; Phoenix, Ariz.; Portland, Ore.; Seattle, Wash.; Washington, D.C.

FOUNDED: 1939

EMPLOYEES: 605

TOP EXECUTIVES: Arthur B. Birtcher and Ronald E. Birtcher, co-chairmen; Michael H. Voss, president; Richard A. Seltzer, chief operating officer

MAJOR PROJECTS: Pacific Design Center, Los Angeles; Xerox Centre, Santa Ana; Lakeshore Towers, Irvine

THE BIRTCHER-MITSUI MARRIAGE

Mitsui & Co. Ltd. agreed this month to acquire half of Bircher’s development and construction business for more than $100 million. Some of the major projects in the deal include:

Name Location Towne Square Lake Oswego, Ore. Forbes Center I Lanham, Md. La Posada Palm Desert The Wellington Laguna Hills Klump Site North Hollywood Monterra Palm Desert AST Headquarters Irvine L.A. Wholesale Produce Mart Los Angeles Lakeshore Towers Irvine PROJECTS UNDER CONSTRUCTION Spectrum 95-Phase 1 Prince George’s County, Md. Las Vegas Industrial Center Las Vegas, Nev. Spectrum 95-Phases II-IX Prince George’s County, Md. Centerpointe Lake Oswego Lake Oswego, Ore. Xerox Phase II and III Santa Ana Industry Redevelopment City of Industry Agency PROPOSED PROJECTS Tripointe Irvine Freeway Technology Park I Irvine Freeway Technology Park II Irvine Diamond Bar (Arciero) Diamond Bar Corporate Plaza Newport Beach Monterra II Palm Desert Main Street--ORIFA Santa Ana

Name Type Towne Square Retail, offices Forbes Center I Garden office La Posada Unimproved land The Wellington Congregate care facility Klump Site Contiguous retail buildings Monterra Single-family housing AST Headquarters Office, R&D; L.A. Wholesale Produce Mart Wholesale mart Lakeshore Towers Office park PROJECTS UNDER CONSTRUCTION Spectrum 95-Phase 1 Commercial, industrial Las Vegas Industrial Center Industrial Spectrum 95-Phases II-IX Site development Centerpointe Lake Oswego Office, commercial Xerox Phase II and III Office, commercial Industry Redevelopment Redevelopment project Agency PROPOSED PROJECTS Tripointe Office, commercial, retail Freeway Technology Park I R&D;, offices Freeway Technology Park II R&D;, offices Diamond Bar (Arciero) Office park Corporate Plaza Offices Monterra II Single-family housing Main Street--ORIFA Commercial, office, retail

SOURCE: Birtcher