Irvine Co. Chairman Donald L. Bren's gift of 11,000 acres of open space to the people of Orange County could also reap the company hundreds of millions of dollars in tax deductions, in what appears to be the largest tax break of its kind.
Using "conservation easements"--an increasingly popular method of preserving land--the company is signing over development rights on the land while retaining ownership for 10 years.
That will yield not just hefty tax breaks but also the ability to design and control public access as the company sees fit.
By writing off thousands of acres of steep, nearly unbuildable terrain prone to landslides, along with prime smaller pieces slated for development, the company also could maximize value on land that is worth as little as 3 cents a square foot on the latest tax rolls.
Bren's gift, announced in November, has been widely praised by company critics and admirers alike. The subject of tax breaks for the company has drawn speculation but no criticism.
"It's a tax benefit, all of it is legal, all of it's correct," said Theresa Sears, an Orange resident who has fought Irvine Co. developments in east Orange, including some on lands that will now be preserved.
"The people benefited, and Bren, a smart man, will benefit too. It's a win-win for everybody. So none of us over here that got our gift have to be beholden to the Irvine Co. down the road, because Don Bren got a gift too."
Craig Atkins, partner at O'Donnell Atkins Co., California's largest land broker, said the tax breaks are part of the beauty of the package.
"It's a fantastic deal for everyone," Atkins said. "You can't pave over everything. If you're a neighbor living in Orange County, it's great, and if you're [Bren's] banker, it's also great.... That's Don Bren. He's got it wired.... The guy is brilliant."
Bren is sole owner of the Irvine Co. Company officials declined to be interviewed about the tax ramifications.
"We don't discuss finances," said spokesman Rich Elbaum.
Monica Florian, group senior vice president of corporate affairs, said: "Whatever charitable contribution would be permitted under law is what would be applicable here."
She said she was not familiar with the details but "ultimately, that is decided by the IRS."
An IRS spokesman confirmed the legal structure of conservation easements but said no information about specific cases could be released by the agency.
Conservation easements allow a donor who signs away development rights to deduct the difference between what the land would have sold for if it could be developed and what it would sell for without such rights.
Income-tax records and land appraisals are private, but several land-sales professionals, including Atkins, said that in the red-hot Southern California real estate market, the total acreage with development rights would sell for at least $500 million.
Without the potential for development, the land would be worth as little as $88 million, those same experts said. The tax deduction under this scenario would be $412 million--the value of the lost development rights.
Experts interviewed emphasized that those figures probably understate the value of the property and the ensuing deduction.
"There's a lack of supply of housing and a glut of demand in Orange County," which drives up the worth of land that can be developed, said Bob Holman, a certified general appraiser at CB Commercial in Orange County. "Appraisal is an art as much as a science, and there's always a range of potential values.... [$500 million] is a conservative figure," he said.
Whatever the amount of the deduction, "it will absolutely be the largest" of its kind, said Stephen Small, who wrote the original IRS code on conservation easements and has written four books on land ownership and taxes. Small, now a Boston-based private attorney, has prepared hundreds of conservation easements and said the most substantial yielded tax benefits of $10 million to $50 million.
The Land Trust Alliance, a national nonprofit that tracks open land, said the number of conservation easements is "skyrocketing."
Usually they are used to preserve smaller, prized pieces in resort areas like Jackson Hole, Wyo.; Martha's Vineyard in Massachusetts; or Aspen, Colo.; or large rural lands. In the largest acreage conservation easement to date, the Pingree timber family signed over development rights to 750,000 acres of Maine woods and was paid $30 million. Because the family was paid, it did not receive income-tax deductions.
But because of its size and location in fast-growing, wealthy Orange County, "there is no land like Bren's anywhere else in the U.S.," said Atkins, the California land broker.
Conservation easements can be tailored to the landowner's wishes as long as they do not irrevocably destroy ecological values.
Bren and the Irvine Co. are dividing the 11,000-acre gift into seven conservation easements to be signed over to the Nature Conservancy by the end of June.