Bren Solidly Bullish on 2007 Economic Growth

Bren solidly bullish on 2007 economic growth

Count Donald Bren among the optimists for 2007.

The Irvine Company chairman, whose Newport Beach-based company is a bellwether for the region’s housing, office and retail markets, predicts a strong local, state and national economy this year.

Orange County’s housing market could rebound by late spring or summer, according to Bren. Retail sales should remain strong, he said. Office rents here could grow by about 8%, he projects.

The end result could be an economy that, while not as robust as the one seen last year, still should show growth:

“I’m positive about the U.S. economy,” Bren said in a recent interview for the Business Journal’s businessperson of the year honor. “We’re expecting 3.3% (gross domestic product) growth in ’06. I think we’ll see between 2.5% and 3% growth in ’07.”

Job growth in California “has been wonderful over this last year,” he said.

“It will continue but at a slower pace,” said Bren, who calls himself a “student” of the economy since job growth drives real estate. “Business in California is vibrant in all sectors, with the exception of housing.”

“We’ve never had it so good,” he said.

A strong California economy could prompt Bren to up his investments in other parts of the state. Besides Orange County, the company owns offices and apartments in San Diego, West Los Angeles and Silicon Valley.

About 22% of the Irvine Co.’s real estate now is outside the Irvine Ranch that traces back to Mexican and Spanish land grants in the 1860s.

“Over time, I think that number will grow,” Bren said.

A rebounding housing industry locally is part of Bren’s outlook for a strong 2007.

With developments—both homes and apartments—in the works in Irvine, Anaheim and Orange, the Irvine Co. has a vested interest in the fortunes of the housing market.

The company readies land for development and sells it to homebuilders, which then build to the company’s guidelines.

In December, Federal Reserve Chairman Ben “Bernanke said that the worst is over—that he believes we’ve bottomed out, as far as housing,” Bren said. “Our sense of tracking housing, locally, regionally and nationally is that is probably true.

“Our internal forecast here is that within six months, we’ll see a distinct turn,” he said. “Not a dramatic turn, but a positive turn.”

That should translate into more homes being built as a 10-month supply of homes now on the market starts to sell off.

He points to the state’s long imbalance between homes and demand for them.

“I’ve been saying this for a long time: The homebuilding industry cannot create housing to equal the demand for housing in California, and in Orange County. That’s going to be an interesting challenge for builders, as we come back. And it’s important to the economy,” Bren said.

But don’t expect to see big gains in the area’s home prices this year, compared to the “unrealistic” gains seen in the past few years, he said.

Asked whether home prices will rise in 2007, Bren said, “I wouldn’t go that far.”

National Concern

Housing and the related subprime mortgage industry deeply rooted in OC is a concern for the health of the national economy, Bren said.

“Over the last few years, builders were building at a rate we’ve never seen before. They overbuilt,” he said. “That was really instigated and supported by loose lending policies. People who were not qualified to buy a home, or who just barely qualified, would buy a home and receive a mortgage from companies that are based right here in Southern California.

“They’re still doing it today, which I’m surprised about, even though the Fed has created more stringent lending policies,” he said.

In the Midwest, the ailing automotive sector remains a concern, according to Bren.

If auto and housing were in better shape, “You’d see (an increase of) over 4%, 4.5% in GDP,” Bren said.