Orange County's two largest community builders said Monday that they will drop out of the home-building business to concentrate exclusively on developing their extensive land holdings.
Irvine Pacific--the residential building arm of Irvine Co., which owns 68,000 acres in central and southern Orange County, and Mission Viejo Co., developer of the 11,500-acre Mission Viejo community and the 9,000-acre Aliso Viejo community, said they will rely in the future on outside contractors to build homes on their properties.
An Irvine Pacific Co. official said the company also intends to get out of the apartment-management business within the next year--a move that could eliminate a 200-employee division.
Both companies related the move to a need to streamline operations, reduce general administrative costs and position themselves for an expected cooling of the current frenzied home-building pace.
For the first four months of the year, residential builders in Orange County remained among the most active in the state, the state general contractors association said Monday.
But outside analysts said the decisions by Irvine Pacific and Mission Viejo Co. to get out of the active building business were wise.
"The real profit opportunity in real estate is developing the land," said Alfred Gobar, a Brea real estate consultant.
"Your rate of return on making land available for development is probably much greater than for being a producer of finished real estate products. They should be able to make just about as much money with a lot less hassle."
Roland Osgood, president of Irvine Co. Land Development Group, said the company's home-building activities will be shut down within six months, ultimately resulting in the dismissal of 50 employees, including 11 who will be laid off immediately. The company is building just one condominium project.
Mission Viejo Co. said it will stop its home building after completing current projects, which could last another year. The company would not say how many jobs would be eliminated.
A spokeswoman said most of the workers employed in the company's building projects are independent subcontractors and do not work directly for Mission Viejo Co.
Both companies said they would function as executive developers and hire other companies to design and build projects in their planned communities.
For Irvine Co., Osgood said: "The purpose of this strategy is to strengthen the company's financial position, streamline our operations and create an investment property portfolio for the company at a greatly reduced risk."
He said the "risk" consisted of "a huge overhead (investment) in Irvine Pacific" that otherwise would have to be maintained in a down market.
Osgood said that after the layoffs, a skeleton crew of five employees will remain at Irvine Pacific to oversee projects built by other developers, including building 600 to 1,500 apartments a year.
Irvine Pacific intends to continue operating its 200-employee property management division for the immediate future, but Osgood said he expects that Irvine Co. will contract with an outside firm within the next year to assume that function.
He said he believes Irvine Pacific employees would be hired by the outside firm.
Osgood said Irvine Pacific's move was a logical follow-up to a decision by the parent company's board of directors last September to stop all corporate construction activities and shift construction of future commercial, industrial and housing projects on Irvine Co. land to outside builders.
Company officials said the change was made to enable Irvine Co. to cut operating costs by streamlining its work force--a move that started in August, when 240 of the company's 1,343 employees were dismissed.
Richard Sim, president of Irvine Co.'s office and industrial subsidiary company, said contracting for building and development services will enable Irvine Co. to more easily accelerate or slow its activity in response to market demand.
A Mission Viejo Co. spokeswoman said the company builds about 50% of the homes in its two planned communities in Orange County. The company will continue to be the primary residential builder at its 12,000-acre Highlands Ranch project just south of Denver.
At Irvine Pacific, Osborn said, officials are interviewing about 10 major apartment developers to decide with whom it will form joint ventures. He said outside builders will provide greater efficiency and expertise than a full-time staff could offer.
"You've got some brilliant developers in this county that you couldn't afford to put on your payroll," he added.
Gobar agreed that neither Irvine Pacific nor Mission Viejo Co. would face problems finding home builders for their projects: "There's no restriction on the supply of would-be builders. They're everywhere."
Times staff writer Warren Vieth contributed to this article.