Old Town Irvine Is Brand New : Developers Staking Their $20-Million Restoration on Nostalgia and a Little Something for Everyone

Over in the corner of the Knowlwood restaurant at Old Town Irvine, there are some odd marks burned into a wooden wall.

When this was a blacksmith’s shop, those marks were the brands of the ranches hereabouts. The blacksmith used them for reference when making new branding irons.

The shop was at the center of Irvine, when the city was a small farming community at the turn of the century. The railroad depot was here, near where the tracks met Sand Canyon Avenue; so was a school, a silo for the tons of lima beans harvested each year, a general store, a bunkhouse for the ranch’s cowboys and later the first Ford dealership in Orange County.

Now, most of the lima bean fields are covered with streets and pastel-colored subdivisions, low-slung industrial buildings and boxy office towers of tinted glass: A city of 98,000 that did most of its growing in just the last 20 years.

And the buildings of Old Town, once ramshackle and derelict, have been spruced up to entice the yuppies of Irvine, the Marines from the nearby El Toro air station and passers-by on the adjacent Santa Ana Freeway.

Old Town is probably the largest restoration project in Orange County, a $20-million gamble that is too new to tell whether it will succeed. Will people want to stay at a hotel made from a concrete grain silo? Can the nearby corrugated metal warehouse find the right mix of tenants to keep shoppers coming back? Those are the sort of questions that pester Robert B. Smith.

A Talk With Tenants

On a recent weekday afternoon, Smith wheeled his Jaguar into the parking lot of La Quinta Inn at Old Town and got out to talk to his tenants.

Smith, 43, is one of the general partners behind Old Town. He has a doctorate in psychology and teaches at Orange Coast College in Costa Mesa when he’s not developing small real estate projects. Old Town is his largest project.

Calling each tenant by name, Smith stops for a fresh-squeezed orange juice at the Orange Inn Cafe & Market and for a shooter of tequila at Tia Juana’s Long Bar & Mexican Cafe--”Longest Bar in Orange County”--where a well-dressed, after-work crowd is just trooping in.

“We tried not to have chains in here,” said Smith as he shows a guest around Tia Juana’s enormous, 9,000-square-foot restaurant.

“We had a chance to make deals with people like Denny’s, but we wanted our tenants to have a uniqueness.”

Split Personality

Still, Old Town seems to have a touch of retailing’s version of the split personality. At the far end of the 6.5-acre project is Knowlwood, basically a fast-food joint, and at the other end is a snazzy, expensive wine shop called Sirus Cellars where customers can find unusual vintages and can store their purchase in their own rented wine cellar.

The idea is to delicately balance the mix of stores and restaurants to appeal to the widest spectrum of customers, from the Marines at the nearby air base to Irvine professionals to older people from the Leisure World retirement community down the freeway, said Tim Sloat, a broker for Scher-Voit Commercial Brokerage Co., who is leasing the project. Yet the stores have to be unique enough to keep people coming back.

And since there’s room for only a few more stores or restaurants at Old Town, the choices had better be right, Sloat said. Bad choices could take the other retailers down with them.

“The decision was to provide as wide a range of retailers as possible, excluding the typical neighborhood shopping center tenants like dry cleaners, frozen yogurt places and chain pizza operations,” Sloat explained.

“We also had to be careful not to run the risk of having a cheap imitation of Knott’s Berry Farm, in which case people would laugh at us.”

There is actually a glut of store space in most of Orange County, but not in Irvine or, for that matter, in the whole southern half of the county. The south county is growing so fast--that’s where all the undeveloped land is--that there are still plenty of customers. In the northern half of the county, where population growth is slower, video stores, pizza shops and convenience stores have multiplied so rapidly that they’re stealing each other’s customers.

So even though two-thirds of the retailers who want to move into Old Town probably aren’t suitable, Sloat says, there are still plenty left to choose from.

Monthly rental rates are about average for Irvine, from $1.75 to $2.50 per square foot, plus the tenant’s share of property taxes, insurance and maintenance. And so are the amounts of money Old Town grants tenants to decorate their stores, say other real estate brokers with experience in the Irvine market.

While the restored buildings are fairly snazzy, one thing that keeps rents down is the fact that Old Town really isn’t centrally located in Irvine--it’s on the eastern end--and it isn’t really on the way to anywhere in that part of the county.

Top Producer in Chain

Still, Knowlwood--one of a small, family-owned chain of five stores--is the top producer in the chain, employees say. It’s now doing $100,000 a month. Knowlwood is one of the older burger stores in the county.

Tia Juana’s, which just opened last fall, took in $7,000 one recent Friday night and hopes to do up to $200,000 a month this year, says Dan Neyenhuis, a casually dressed veteran of the restaurant industry who is one of the owners. His partners also own an interest in the Crazy Horse Steak House, a successful country and Western venue in Santa Ana.

The Orange Inn--now doing business in what was once the Ford dealership’s building--is a historic eatery once located on Coast Highway near Corona del Mar. It was forced to move by the Irvine Co.’s plans to develop the coastal hills as a resort. The inn is still searching for its market, Smith says, but altogether the restaurants are doing quite well.

Though the project still has a way to go, it is a far cry from 1984, when the buildings were tumbling down and the prospects for restoration seemed nil.

Moves to Save General Store

In fact, one of them--the old general store, now rehabilitated and soon to be leased by a gift shop--was squarely in the way of an Irvine Co. project to widen Sand Canyon Avenue.

The city of Irvine asked the company--which was started by the Irvine family and is now the largest private landholder in the county--if there were some way that the old store could be saved.

The company contacted James W. (Walkie) Ray, president of J. Ray Construction Co. in Irvine, who had worked with the Irvine Co. before. Ray brought in Smith, the psychologist, whom he had met in the early 1970s when they were both young professionals living on the same street in Costa Mesa. Since then, Smith has been Ray’s partner in several small developments.

The builder and the psychologist walked around the weedy area looking at the broken-down buildings--the blacksmith’s shop was so ramshackle that a Santa Ana wind might have blown it down if its big front doors hadn’t always been open--and decided that they might as well have a go at the lima bean silo, the corrugated metal warehouse--the whole thing. Smith had read about a grain silo in Ohio that had been converted to a hotel. Why not go for it?

The two talked the Irvine Co. into becoming a partner in return for kicking in the 6.5 acres. The company won a guarantee of $1 million off the top if Old Town is sold and 25% of the project. That is essentially a subsidy of the project, since 6.5 acres on the freeway could be worth a lot more if you were building office towers there, for instance.

Smith, Ray, brother Michael D. Ray--executive vice president of the family construction company--and a Pasadena tax lawyer named Bernice Anglea were the general partners, owning 50%. Anglea was familiar with the tax breaks generated by restoring the historic buildings and putting them on the National Register of Historic Places. And she also helped sell most of the 30 limited partners, who put up $2.5 million that got the project started in return for the other 25% of the project and most of the tax breaks. The limited partners could not have been enticed--and the vital $2.5 million raised--without the tax advantages, the general partners say.

After recouping their original $400,000 investment from the limited partners, the four general partners have not had to put anything but their time and expertise into the deal, not even a dime. But they do have to cover any losses if the project doesn’t work. That’s a typical structure for such a deal. But the problems you can run into rehabilitating old buildings are anything but typical, and there have been a couple of scary moments for the partners.

“There were more twists and turns than the Ortega Highway,” Michael Ray said.

The 40-year-old lima bean silo, left over from a time when Orange County produced more lima beans than anywhere in the world, had 32, six-sided concrete chambers for storing beans. In order to turn the chambers into motel rooms, construction crews would have to cut through 6 inches of concrete to create doors and windows. When Ray’s construction company--as general contractor--put the work out to bid in 1985, the lowest bid came back 20% over what Ray had budgeted, or about $1 million.

“We had to close the deal on the land in a few days, but we were over budget for this huge amount,” Michael Ray said. “All along, the Irvine Co. had two options: They could believe in us or they could terminate the project. They believed in us.”

The partnership eventually solved the problem by raising more money and cutting some construction costs. The Texas-based motel chain--which has a separate deal with the partnership--wanted desperately to be in Irvine, desperately enough to run a motel where many of the rooms have rounded sides with walls of rough gray concrete. The rooms are furnished with rough-hewn wooden furniture and iron-railed beds in a Western motif.

The motel--three stories, 148 rooms--is about 65% occupied on the average, Smith said, or at about the break-even point after a year.

In the warehouse--which now shelters Tia Juana--the roof and sides had to be removed so the builder could add structural reinforcements. The cost was a staggering $70 a square foot, or “about what you could build a first-class, high-rise office building for in Orange County,” Michael Ray noted.

In fact, much of the risk in rehabilitating old buildings comes from uncertainty about how much it is going to cost, Smith said. “You start tapping into old walls like these,” he said, pointing to the silo, “and you don’t have any idea what you’re going to find.”

Between those kind of problems and the fact that there simply aren’t that many old buildings in relatively youthful Orange County--just celebrating its Centennial this year--it is not likely that there will be many more of these big restoration projects.

But at least these buildings were saved, and they’re likely to stay that way for a long time. In return for additional tax breaks, the partnership granted the city of Irvine control over the building’s facades. That essentially means the buildings are protected and won’t be replaced by office buildings or shopping malls anytime soon.

“Just because they’re on the National Register of Historic Places doesn’t necessarily protect them from being torn down,” Smith said. “But since we gave the facades to Irvine, you can’t even paint them without city approval.”