Irvine Co. Will Lay Off 40 More Employees at First of the Year : Recession: Fourth cutback in two years will leave the developer’s payroll at 245, smallest since the 1960s.

NEWPORT BEACH —  The Irvine Co., the giant developer that owns a sixth of the land in Orange County, said Tuesday that on Jan. 1 it will lay off 40 people--its fourth layoff in two years.

After the first of the year, only 245 people--the fewest since the 1960s--will work at the company’s white, nine-story building near Newport Beach’s Fashion Island mall. The latest layoffs, the company said, will be in all areas of its work force.

The privately held concern keeps its finances intensely secret. But the layoffs show that the recession has severely hurt the company’s two main businesses: selling land to other developers and constructing office buildings and shopping centers for its own portfolio.

The layoffs puzzled some local real estate experts, who said most big developers have already stopped discharging people as the ailing real estate market appears to have neared bottom.

Still, the Irvine Co.’s long-term prospects seem good because--unlike most developers--it already owns so much extremely valuable land, even though there’s not much demand for that property right now.

The company sits astride a vast swatch of 63,000 acres that stretches across the middle of Orange County from the ocean to the mountains along the Riverside County line. The land is the remnant of a vast, 19th-Century ranch and, before that, Spanish land grants. And it was situated squarely in the path of development that began moving south from Los Angeles in the 1950s.

The company is selling little of its vast land holdings these days; because of the recession, there is little demand for new houses or commercial buildings such as offices and factories.

Sales of new homes during the last three months, for instance, weren’t much ahead of those for the same period last year, and last year’s sales were dismal. Office buildings, meanwhile, are overbuilt, and many may take years to fill up.

Land sales are vital to the company because it uses the money to prepare more land for sale and to construct buildings for its own investment portfolio.

Like most developers, the Irvine Co. relies heavily on lenders. And lenders aren’t eager to lend into Southern California’s moribund real estate market, especially with worried federal regulators looking over their shoulders.

California banks, in particular, carry a heavy load of worrisome real estate loans made a few years ago when the market was booming. So home builders who want to buy company land often have trouble getting loans.

“We don’t see any change on the immediate horizon,” an Irvine Co. spokesman said. “We have to keep our staffing and overhead low while it’s like this.”

The company has been a major player in Orange County since the 19th Century, when it was a huge farm. It was one of this suburban county’s largest employers through the early 1970s, when it had more than 800 on its payroll.

But by late 1985, when the company had grown to 1,500 employees, billionaire owner Donald L. Bren began turning over many of the company’s operations to outside contractors, from its farming businesses to the management of its thousands of apartments.

Bren reasoned that the company should be as small as possible so it wouldn’t be caught flat-footed with too many employees during the recurring downturns in the real estate market.

As the company shrank in the mid- and late 1980s, many of the people laid off simply went to work for the outside contractors the company hired. But since the recession hit in 1990, the layoffs have been coming because the company is struggling, rather than for strategic reasons.

The company laid off 40 people in November, 1990, 60 in January of this year and another 60 in May.

Southern California’s other big developers have also had layoffs as large as the Irvine Co.’s past four, which in each case have affected more than 10% of the company’s employees.

But most big local developers and builders, like Newport Beach’s giant Koll Co., have stopped laying off large numbers of employees. They are anticipating that the market has neared the bottom, said Gregory Lubushkin, a partner at the Costa Mesa office of the Price Waterhouse accounting firm.

“Developers have actually been hiring recently for some more junior positions,” Lubushkin said. “You would think whatever consolidation companies are doing would be complete by now.”

Irvine Co. is so old, so big and regarded as so prosperous that local business people are a bit surprised that it has turned out to be as vulnerable to the recession as its competitors.

But while activity has ground to a halt over much of the company’s vast land holdings, there are, the company says, some bright spots. For instance, it is still selling land for factories and warehouses at its Spectrum business park at the San Diego and Santa Ana freeways in Irvine. Spectrum is a good example of the kind of Disneyland-style scale on which the company builds: When completed, the company says, Spectrum will be the largest business park in the world.

Its offices and factories are 95% leased, which sounds good--except that new leases being written reflect today’s low rents.

The company put 1,500 apartments on the market last year as condominiums and says they are selling well. But while the sales raised cash, those apartments are gone forever from the company’s nest egg--its portfolio of investment properties.

The company also says it has sold 66 lots for custom-built houses at its Newport Coast development on the hills overlooking the ocean between Newport Beach and Laguna Beach. The lots cost from $500,000 to $3 million each, and the sales come at a time when most luxury housing is languishing unsold on the market.

But the company also spent enormous amounts building a golf course and roads through the property.

“The land sales almost certainly aren’t coming as fast as the company would like in order to offset its development costs,” said Pamela Wooldridge, who once worked for the company and is now at Research Network, a Laguna Hills market research company.

The company, though, probably still has an enormous advantage in its vast land holdings, which cost it comparatively little to buy a hundred years ago. Even if Bren has borrowed heavily on the land since--and it isn’t known outside the company what the debt is--the land is an enormously valuable asset.

And under Bren the company has also built up an enviable investment portfolio that includes hotels, some of the mid-rise office buildings around Fashion Island, the Fashion Island mall itself, and office buildings at Jamboree Center off the San Diego Freeway.

Even if those buildings are not bringing in fabulous returns now because of the low rents, their value is certain to go up if Orange County resumes growing.

“Most landlords have been signing tenants up on relatively short leases,” Lubushkin of Price Waterhouse said.

“In a few years those leases will be up, and the landlords will be raising the rents.”