Lennar: Is the Little Red Hen cooked? by gimleteye

Little more than a year ago, Lennar CEO Stuart Miller turned crimson when the Miami Herald disclosed the role of the poem, “The Little Red Hen”, in building corporate togetherness. (“Lennar Keeps Building Despite Cooling Market”, September 25, 2006)

“The poem—about a hen that labors to find worms in tough times – is something of a right of passage at Lennar, the third-largest home builder in the country. Since 1994, some 4,000 employees have recited the poem to the applause of peers, with the name, date and place of each performance memorialized on large plaques outside Miller’s office.”

The Herald report noted the brave course that Stuart Miller set, despite a gathering storm in housing markets for which his competitors were canceling construction. While other production homebuilders retreated, CEO Miller resolved to push forward like the brave little red hen and build his way out of trouble.

“The little red hen, who heard him, didn’t grumble or complain,
She had been through lots of dry spells, she has lived through floods of rain,
So she flew up on the grindstone and she gave her claws a whet,
And she said, “I’ve never seen a time there were no worms to get.”

Only three months after the Herald report, Lennar took a precharge loss of $500 million for land inventory or land under options to purchase.

The loss included one tract in particular in Miami Dade county, its home territory.

Lennar dropped its option to buy thousands of acres of wetlands at the edge of Biscayne National Park, where the company had been planning to push zoning changes and a new “affordable” housing ordinance. The owner, a rock miner in wetlands, had confidentally valued his property at $200 million.

Environmentalists waged a pitched battle to stop Florida City Commons, but the market did far more than they could have ever hoped to accomplished, absent costly and length litigation to stop the encroachment of more than 6,000 homes into fragile wetlands.

Raw land appears in the corporate ditty on the Red Robin as just another place to exploit for tract housing.

“She picked up a new and undug spot; the earth was hard and firm.
The big white rooster jeered, “New ground! That’s no place for a worm.”
The little red hen spread her feet, she dug fast and free,
“I must go to the worms,” she said, “the worms won’t come to me.”

Hard ground or muck; it mattered not at all to the company that its Florida City Commons would have injected more suburban sprawl near the Everglades.

For the project, that sank beneath the weight of collapsing housing markets in late 2006, lobbyists included Sandy Walker, the sister of both the local mayor, Otis Wallace, and Barbara Jordan, a county commissioner, representing an inner city neighborhood yet anxious to push urban services into areas where no such services have existed because of environmental sensitivities.

At a public hearing on the annexation request by Florida City to the county—approved with smiles all around early late in 2005—one inner city activist lambasted the racial and ethnic undertone as “pitting the browns against the greens”.

The bad karma has been piling up for the Little Red Hen.

In September 2007, the company reported a net loss for the fiscal third quarter of $513.9 million.

Today, production home builders are selling to real estate vultures as fast as they can. Open, raw land—suburbia in the making—are being sold at 50% to 75% discount from peak values, according to the financial press.

But in Miami Dade county, where land speculation outside the Urban Development Boundary resembled a shark feeding frenzy—with prices per acre trading in some cases at more than $1 million per acre despite the zoning barrier to building—the pressure has not let up. Too many lobbyists and power brokers own land outside the Urban Development Boundary.

An analysis of Lennar on the website, Street.com, writes, “How can they sell land for 60% less than what they said it was fairly valued two months ago?” asks one homebuilder analyst, who declined to be named. “It raises and accounting issue,” the analyst says. “Auditors need to come in and take a close look at what assumptions the builders are using.”

One assumption that Lennar is making is that its mega-project in West Dade outside the Urban Development Boundary called Parkland will be able to pass all the zoning thresholds at the local and state level.

Local Lennar executives could have made Florida City Commons work by strong-arming governmental processes including federal agencies like the US EPA and Army Corps of Engineers. After all, any regulatory barriers to sprawl have proven fat, round worms for developers.

In Miami, the entire purpose of local government—nominally to serve the health, welfare and safety of people—serves the purposes of the building and development lobby.

Production home builders have a more receptive audience at the Miami Dade county commission than anywhere else in the United States. This is, after all, the place where builders and development interests delivered Florida to Governor Jeb Bush in 1998 and to George W. Bush in 2000. (see eyeonmiami.blogspot.com archive: housing crash)

The Lennar Parkland project depends on building new transportation routes from Miami’s urban areas toward the Everglades, where the federal and state government have pledged to spend billions of dollars on restoration of America’s most threatened ecosystem.

On December 3, the Wall Street Journal reported (“Lennar, Morgan Stanley Forge Land Model”) that Lennar had reached an agreement to sell about 11,000 home sites for $525 million, representing a write-down from book value of $1.3 billion to 40 percent of purchase costs.

The multi-billion dollar losses of production home builders are crumbs fallen from the table compared to the world-wide credit crisis they helped to ignite.

The little red hen says, “I’m full of worms and happy, for I’ve dined both long and well/ The worms were there, as always—but I had to dig like hell!”

What deep holes it dug for the rest of us in Florida. In Miami Dade county alone, taxpayers are on the hook for billions of infrastructure deficits, manifest in a declining quality of life, all to keep the Growth Machine singing its little ditties on key.