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
"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
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
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
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
The Land Trust Alliance, a national nonprofit that tracks open land,
said the number of conservation easements is
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
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.
Only one has been recorded so far. Records on the so-called Laguna
Laurel easement, 173 acres in Irvine near Laguna Canyon Road, show
the Irvine Co. has reserved the right to send urban runoff from an
adjacent new development across the preserved land.
A similar tactic led to costly delays a few years ago for the
company on its upscale Newport Coast development, after the state
Coastal Commission questioned rights the company had retained to
drain runoff across Crystal Cove state park when it sold the
parkland to the state.
Although there are no immediate plans to put in utility lines and
roads, the company also has reserved rights to do so, and even
conduct "slant" drilling under the site from adjoining
Company and Nature Conservancy officials said the impact and size of
any such construction would be extremely limited and would require
approval by appropriate government agencies.
Small called the runoff, roads and other rights "novel."
He said the "first line of defense" in monitoring a
landowner's compliance with conservation values is the designated
environmental group that is the recipient of the easement.
In this case, that group is the Nature Conservancy, which is being
paid $20 million by the Irvine Co. to manage all its open space.
Longtime activist Sherry Meddick said possible roads through the
open space in east Orange, along with other new roads and
development nearby, will destroy essential wildlife corridors.
"The mountain lions are going to need a road map and crossing
guards," she said.
Trish Smith, senior biologist in Orange County for The Nature
Conservancy, is overseeing the gift land. She expressed concern over
roads that might be built in easement areas. But she said the
proposed development nearby would not block wildlife corridors.
She said studies had shown mountain lions and other animals
primarily move through the lands that are being set aside.
"If I'd been asked a year and a half ago what was needed [for
wildlife corridors], these are exactly the lands I would have
selected," she said.
Florian said the Irvine Co. does not necessarily think new roads
needed to be built on the gift lands. But, because of concern by
some local officials about increasing traffic, she said, the company
didn't want to rule out the possibility of building any previously
Whatever the final language and tax deductions of the easements, the
company will finally find a use for some swaths of land that, on the
books, are worth as little as $1,300 an acre. It would probably cost
hundreds of millions of dollars to even prepare the tangled virgin
wilderness in steep, narrow canyons for construction.
"It's mostly 'hilly-to-waste' category land. It goes straight
up," said the Orange County tax assessor's managing appraiser
Steve Grimm, of 900 acres known as Fremont Canyon that are part of
the land being set aside. "It's almost impossible to build
Although the property may not be worth much on the books, the
inability to bulldoze or otherwise touch it has left a treasure
trove of wildlife. From golden eagles and mountain lions to
spadefoot toads, newts and seven species of bat, the land is full of
rare and endangered species.
Nature Conservancy of California director Graham Chisholm said that,
whatever the tax ramifications might be, the gift brings an
important additional layer of protection.
"The fact that there is now a conservation plan is a huge
plus," he said. "You can sleep better at night."