Some Take-Aways from the LandSource Settlement
The great 2008-2009 LandSource bankruptcy marathon has drawn close to a finish line, for the moment. Here’s Big Builder’s Teresa Burney’s story on what looks like the resolution of many issues, many questions, and many shirts lost over 15,000 home lots in Valencia, Ca., 20-or-so miles north of downtown Los Angeles.
Although, last week’s LandSource deal as it stands today, like many, many matters financial and economic these days, shares an ever more widely current mantra of wistful consolation: “It could have been much, much worse.”
One executive close to the LandSource news last week noted that, thanks to the good-faith negotiations from most of the stakeholders, and thanks to the competence of restructuring advisors Lazard Freres, the worst-case scenario–liquidation–was avoided.
“This is the first big residential real estate entity that went into bankruptcy and came out,” said our friend, who’s been close to the LandSource machinations for more than a year. “Look at Neumann Homes, and Kimball Hill, and any number of the other larger bankruptcies that have occurred, and you got everybody losing everything. Settling the way they did saved a lot of jobs up there, and that’s just one thing you can say positively about this whole process.”
Residential real estate California style, you have to admit, adds a measure of panache and drama to the classic story of people agreeing to pay more than they could afford to pay for dirt, and then regreting it.
Out of the ruins of a landbank-community development caper on steroids, whose erstwhile $2.6 billion architecture in early 2007 rivaled that of any collateralized debt obligation structured investment, comes a new name for a new entity, Newhall Land Development.
And from the rumble of an army of creditors who held chits that would pay them pennies now for the dollars they put in 36 short months ago, versus the dozens of dollars [per dollar] they’d first envisioned they’d take away when they invested, comes a familiar face to run things, Emile Haddad.
Emile, 40% owner of a venture with Lennar, called Five Points Properties, which is the managing partner set to run Newhall Land Development.
Five Points, by the way, might be one big capital joint venture deal shy of providing Lennar the split-level strategy it has hinted at for a couple of years now. If he gets a big money dance partner, then he can serve as Lennar’s strategic land position and supply line, letting Lennar Homes hew to an asset-light home building and marketing operations model.
What’s not terribly clear from the LandSource bankruptcy settlement is what it means to the buying and selling of land in the rest of the country. LandSource watchers–and there are plenty of them–have been hoping for a valuation beacon to shine from the settlement last week.
That’s difficult to discern directly from the valuations and dispositions placed on the sundry assets that fell under the LandSource name. Clearly, the real estate once known as Newhall Farm and Ranch in Valencia, and all of the non-Valencia holdings, pencilled in the range of $300 million to $325 million, when once they tipped the scales at $2.6 billion.
“There’s no straight-line relationship between what it all was worth then vs. now, because the assets are so different,” said our executive source. “Plus, it almost doesn’t matter what it’s worth today. The money is all about what your assumptions are for what the next three or three and a half years are going to bring in the real estate market.”
With $140 million from Lennar, Lennar gets two big plusses. One, is they get 15% of the newly reorganized company–along with title to a slew of coveted home building lots. Two, they get off the hook on $1.4 billion they might have owed if stars hadn’t aligned as they wanted. The reset for them gives them both time–the full entitlements will take three to four years of haggling on the ground– and rights to lots they can turn into cash.
For Haddad, complexity is a norm. His deals today are not so much cost-value and internal rate of return transactions as they are belief systems. Whatever the pennies or dollars are for the dirt today matters little. The question is, will the next up cycle map to his–and Lennar’s–timeline, which looks to be about three or four years.
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[...] Some Take-Aways from the LandSource Settlement | Housing Crisis By jmcmanus Out of the ruins of a landbank-community development caper on steroids, whose erstwhile $2.6 billion architecture in early 2007 rivaled that of any collateralized debt obligation structured investment, comes a new name for a new entity, … Housing Crisis – http://www.housingcrisis.com/ [...]