CHRISTOPHER WOODARD Staff Reporter Newhall Land & Farming Co.’s property holdings in and around Valencia are valued at $845 million. Not a bad return, considering Henry Mayo Newhall, patriarch of the Newhall family, acquired the land in 1875 for just $90,000. Observers credit the company’s low land acquisition cost as one of the keys to Newhall Land’s success. Its Valencia project has flourished while most other planned communities have failed. Another key, observers agree, has been the stewardship of Thomas L. Lee, who serves as chairman and chief executive and has been with the company for 28 years. Ehud G. Mouchly, managing director of the real estate consulting group for PricewaterhouseCoopers LLP, credits Lee with positioning Newhall Land to take advantage of L.A. County’s northward expansion by playing it smart during the recession. He did so by beginning the planning process for Newhall Ranch, the company’s proposed new city for 70,000 residents, when county planners were hungry for work. “Tom is probably one of the premier planned-community developers in the nation,” said Mouchly. “He’s certainly one of the more methodical.” Question: Newhall Land spent millions seeking entitlements during the recession. Weren’t you worried about committing those resources when you didn’t know if the economy would rebound? Answer: When you build a community over 30 years, and you go through four recessions as this company has been through since the start of the (Valencia) project, you learn an awful lot about how this business works. It’s a cyclical business. Even though you go through recessions, and they’re painful for real estate companies, you’ll always come out of them. You’ll always recover particularly when you’re in a dynamic, growing community like Los Angeles. Recovery is pretty much inevitable. Q: Why is that? A: If you look at what happened in the San Fernando Valley, all the developable land was virtually built out in the 1980s. For Los Angeles’ northward expansion to continue, this is really where it has to happen now. If you look at what has happened in our business in this expansion, everything we expected to happen is now occurring. We’ve got more residential development going on than we’ve ever seen before. We’ve got more industrial development than we’ve ever seen before. We’re going to develop over 100 acres of industrial land this year, which is an all-time record for the company, and by far the most commercial development we’ve ever seen out here. So all three areas of our business are doing phenomenally well, and better than they did in the past. Q: In ’94, when a lot of people were still wondering if the market would turn around, you approached the county with plans to build a 70,000-resident community. Why did you take that gamble? A: I think it has to do with our conviction that once again, Valencia would shine more than it ever had before. So we knew it was time to move on to the rest of our property in Los Angeles County, because we could start to see the finite limit of the property that we had in Valencia. It wasn’t an easy decision, but again, because it takes so long to get things approved, you just really have to have a long-term view. We made the decision that we needed to start developing Newhall Ranch by the early turn of the century because we would start running out of certain product types in Valencia around that time. Q: What did you do to retrench during the recession? A: The biggest thing is when sales slow down, you just stop developing inventory. That’s the biggest cost all of your land development infrastructure. So you stop building roads, you stop grading and all that and you preserve your cash. We also went through some very painful reductions in staff around here, but it’s something all real estate companies have to deal with during a recession. Q: What’s the advantage of developing a planned community given the enormous cost of providing all the infrastructure, the roads, schools, sewer plants etc., compared to traditional subdivisions? A: People are willing to pay more for the same house or same-sized lot in a planned community, because they know transportation is well planned, the parks are there, the schools are there and they also know that values over time are stronger in planned communities than they are in other locations. That’s well documented. You create more value by creating a better place to live and a better place to run your business. Q: L.A. County supervisors recently directed you to downsize Newhall Ranch by as many as 3,500 homes. You have until Oct. 27 to revise your plans. Does it look like the project is penciling out? A: They made certain recommendations on how land use should be changed. Based on those recommendations, they estimated that’s how many units would be taken out of development. We’re now going through and more precisely figuring out what the implications are for the plan. But my guess is, the number will be somewhere between 3,000 and 3,500. There are other issues that need to be resolved, but we’re hopeful at this point we’ll be able to work all of those out. Q: The Sierra Club recently filed a complaint with the Public Utilities Commission alleging there isn’t enough water in the area to sustain Newhall Ranch. Is that a serious stumbling block? A: We don’t consider it a stumbling block. Obviously we’re concerned when someone attacks the project for whatever reason, but water is one of the areas we’re very confident about that adequate supplies will be available for the project. We’re not going to be using groundwater, which is one of the areas everybody keeps talking about. Everybody thinks we’re going to steal their groundwater. It’s very clearly documented in the EIR (environmental impact report) where the water is coming from. It’s reclaimed water from the water reclamation plant, it’s Castaic Creek flows which we’re entitled to and aren’t being used now, and it’s state water. That’s where the water is going to come from. So I’m confident we’re going to overcome this issue, but it’s just one more thing you have to deal with along the way. You can’t get to the hearing room until you have an answer to all those questions. Q: Ventura County officials have expressed concern about the size of the project and its impact their county. How big a problem is that? A: Ventura County is going to be difficult. We’ve known that all along. Los Angeles County has a much more responsible view of planning for the future. They know their population is going to grow, and the county is trying to plan properly for the growth they know is coming. Ventura County chooses to turn its back on this issue, and as a result they’re not going to have affordable housing, they’re not going to have jobs. They’re trying to imprint their way of thinking on L.A. County. But from L.A. County’s point of view, this is a unique opportunity to develop a whole area rather than on a piecemeal basis.