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                                                                 EXHIBIT 10.23.1

January 22, 1999


Mr. William H. McFarland
6 Weymouth Court
Newport Beach, CA 92660


Dear Bill:

         The Board of Directors of Irvine Apartment Communities, Inc. believes
that in the event of a business combination involving IAC, continuity of
effective management will be critical to the best interests of the Company and
its shareholders. In order to induce you to remain in the Company's employ
throughout any period of uncertainty associated with a proposed business
combination, therefore, the Special Committee of the Board of Directors has
adopted the measures described in this letter agreement. This letter agreement
relates to, among other things, your stock option and restricted stock unit and
performance unit awards granted under the Company's 1993 and 1996 Long-Term
Stock Incentive Plans (collectively, the "PLAN") and supplements the provisions
in the Plan and in the respective Award Agreements. Capitalized terms used in
this letter shall have the same meanings as in the Plan.

Stock Options:      In the event of a Transaction, as defined below, all
                    outstanding Options then held by you shall be canceled as of
                    the date of such Transaction. For each Share underlying such
                    Option, you will be entitled to receive the excess, if any,
                    of (i) the amount or value per share to be received by the
                    Company's stockholders in connection with such Transaction
                    (the "TRANSACTION PRICE") over (ii) the exercise price for
                    such Share under the terms of the relevant Award Agreement.
                    With respect to Options that were already vested as of the
                    date of such Transaction, such amounts will be paid to you
                    in cash as soon as practicable following the Transaction.
                    With respect to Options that were not vested at the time of
                    the Transaction, such amounts shall be paid to you in cash
                    at the time such awards would otherwise have vested pursuant
                    to the terms of the respective Award Agreements, as long as
                    you remain continuously employed by the Company until such
                    payment date, except as described below.




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Restricted Stock    In the event of a Transaction, all of your outstanding
Unit and            Restricted Stock Units and Performance Awards ("UNITS"),
Performance         including Restricted Stock Units scheduled to be granted to
Awards:             you pursuant to the terms of your letter agreement with the
                    Company (the "OFFER LETTER") dated July 14, 1997 ("FUTURE
                    UNITS"), shall be canceled as of the date of such
                    Transaction. For each such Unit and Future Unit, you shall
                    be entitled to receive the Transaction Price, which amount
                    will be paid at the time such awards would otherwise have
                    been available for vesting pursuant to the terms of the
                    respective Award Agreements or the Offer Letter, whether or
                    not any applicable FAD targets are in fact satisfied, as
                    long as you remain continuously employed by the Company
                    until such payment date, except as described below. Such
                    amounts will bear interest from the date of the Transaction
                    in the case of Units, and from February 1 of the scheduled
                    year of grant in the case of Future Units, to the date of
                    payment, payable on the last day of each calendar quarter,
                    at the rate of 5% through February 29, 2000, and at 6% from
                    March 1, 2000 until the date such Unit or Future Unit would
                    have been available for vesting or if sooner, until payment
                    for such Units and Future Units is made in accordance with
                    this letter agreement. Interest will be payable to you in
                    cash as promptly as practicable following each interest
                    payment date.

                    "TRANSACTION" shall mean the occurrence of any of the
                    following events:

                           (i) Any "person," as such term is used in Section
                    13(d) and 14(d) of the Securities Exchange Act of 1934, as
                    amended (the "EXCHANGE ACT") (other than the Company, any
                    trustee or other fiduciary holding securities under an
                    employee benefit plan of the Company) is or becomes the
                    "beneficial owner" (as defined in Rule 13d-3 under the
                    Exchange Act), directly or indirectly, of securities of the
                    Company representing 20% or more of the combined voting
                    power of the Company's then outstanding securities;

                           (ii) During any period of two consecutive years
                    commencing on the date hereof, individuals who at the
                    beginning of such period constitute the Board, and any new
                    director (other than a director designated by a person (as



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                    defined above) who has entered into an agreement with the
                    Company to effect a transaction described in sections (i),
                    (iii) or (iv) of this definition) whose election by the
                    Board or nomination for election by the Company's
                    shareholders was approved by a vote of at least two-thirds
                    (2/3) of the directors then still in office who either were
                    directors at the beginning of the period or whose election
                    or nomination for election was previously so approved, cease
                    for any reason to constitute at least a majority thereof;

                           (iii) The shareholders of the Company have approved a
                    merger or consolidation of the Company with any other
                    company and all other required governmental approvals of
                    such merger or consolidation have been obtained, other than
                    (A) a merger or consolidation which would result in the
                    voting securities of the Company outstanding immediately
                    prior thereto continuing to represent (either by remaining
                    outstanding or by being converted into voting securities of
                    the surviving entity) more than 60% of the combined voting
                    power of the voting securities of the Company or such
                    surviving entity outstanding immediately after such merger
                    or consolidation or (B) a merger or consolidation effected
                    to implement a recapitalization of the Company (or similar
                    transaction) in which no person (as defined above) becomes
                    the beneficial owner (as defined above) or more than 20% of
                    the combined voting power of the Company's then outstanding
                    securities; or

                           (iv) the shareholders of the Company have approved a
                    plan of complete liquidation of the Company or an agreement
                    for the sale or disposition by the Company of all or
                    substantially all of the Company's assets, and all other
                    governmental approvals of such transaction have been
                    obtained.

Acceleration of     In the event your employment is terminated involuntarily by
Payment:            the Company without Cause, as defined below, or by yourself
                    for Good Reason, as defined below, prior to the date of
                    payment of the value of outstanding unvested Options, Units
                    and Future Units (as provided above), the payment of the
                    value of such awards as described herein will be made as
                    promptly as practicable, but in any event



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                    within 10 days, after the date of your termination of
                    employment.

                    "CAUSE" shall mean (i) your willful and continued failure
                    substantially to perform the duties of your position (other
                    than as a result of total or partial incapacity due to
                    physical or mental illness or as a result of a termination
                    of employment by you for Good Reason), (ii) any willful act
                    or omission by you constituting dishonesty, fraud or other
                    malfeasance, which in any such case is demonstrably
                    injurious to the financial condition or business reputation
                    of the Company or any of its affiliates, or (iii) your
                    conviction of, or plea of guilty or nolo contendere to, a
                    felony under the laws of the United States or any state
                    thereof or any other jurisdiction in which the Company or
                    any of its subsidiaries conducts business. For purposes of
                    this definition, no act or failure to act shall be deemed
                    "willful" unless effected by you not in good faith and
                    without a reasonable belief that such action or failure to
                    act was in or not opposed to the best interests of the
                    Company.

                    "GOOD REASON" shall mean:

                           (i) Removal from, or failure to be reappointed or
                    reelected to, your position (other than as a result of a
                    promotion);

                           (ii) Material diminution in your position or
                    responsibilities, such as would amount effectively to a
                    demotion;

                           (iii) Reduction in your base salary or maximum annual
                    bonus opportunity, or breach by the Company of any of the
                    provisions of this letter agreement; or

                           (iv) Relocation of your principal workplace without
                    your consent to a location outside the Newport Beach area.

Severance Payment:  In the event your employment is terminated involuntarily by
                    the Company without Cause, or by yourself for Good Reason
                    within eighteen months following a Transaction, you shall be
                    entitled to one year's Base Salary at the rate in



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                    effect at the time of such termination of employment, or if
                    higher, at the rate in effect at the date of the
                    Transaction. Such amount shall be paid to you in lump sum,
                    without reduction for the time value of money, as soon as
                    practicable, but in any event within 10 days after the date
                    of your termination of employment.

Certain Tax         The Company believes that no amount which you may receive
Matters:            hereunder in connection with the proposed acquisition of the
                    Company by The Irvine Company would be treated as being
                    contingent on a change in ownership or effective control of
                    the Company, for purposes of the application of the "golden
                    parachute" excise tax provisions of the Internal Revenue
                    Code. The Company agrees to take a position consistent with
                    such belief in all matters dealing with the Internal Revenue
                    Service and to refrain from taking any action or position
                    that would be inconsistent with or otherwise undermine such
                    position. In the event that it is ultimately determined by
                    controlling tax authority that amounts received by you
                    hereunder are contingent on a change in ownership or
                    effective control of the Company for purposes of Sections
                    280G and 4999 of the Internal Revenue Code, then,
                    notwithstanding any other provision of this letter
                    agreement, you shall not be entitled to receive the excess,
                    if any, of (i) the total aggregate amount that you received
                    or are apparently entitled to receive hereunder (but for the
                    operation of this paragraph) over (ii) the maximum amount
                    you could have received in connection with such Transaction
                    without incurring excise tax under Section 4999 of the
                    Internal Revenue Code. Such excess amount, if paid to you
                    prior to such determination, shall be then immediately due
                    and owing to the Company.

Legal Expenses:     In the event that it becomes necessary for you to engage
                    legal counsel to pursue a legal remedy for the Company's
                    breach of any provision of this letter agreement, the
                    Company will reimburse you for the fees and expenses of such
                    counsel, when and as incurred by you, unless your claim is
                    determined by a court or arbitrator to be without merit.



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         Please indicate your acceptance of the provisions of this letter
agreement by signing and returning the duplicate of this letter to Shawn Howie.
If you have any questions, please do not hesitate to contact me.


Sincerely,


/s/ Bowen H. McCoy
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    Bowen H. McCoy
    Director, Member of the Special Committee


I understand and accept the terms set forth in this letter agreement.



Signature: /s/ William H. McFarland                  Date: January 22, 1999
           ------------------------
               William H. McFarland


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