Parkland and Lennar, by gimleteye

Eyeonmiami has focused in the past, on the massive development poised for West Kendall by Ed Easton-- called Parkland. In a series of posts under our archive feature "production home builders", you can find more details.

One of the most troubling aspects of the building boom concerned the need for massive publicly traded home builders, like Lennar, to consume ever greater acreage for sprawl. The faster Lennar grew, the more land it needed. The bigger it grew, the harder to incrementally assemble developments to keep growing.

To keep its stock price high, Lennar and other publicly traded production home builders partnered with private intermediaries like Michael Latterner or Ed Easton to inventory land on their balance sheet and not Lennar's. The higher the cost, the higher the stakes. The higher the stakes, the more susceptible to bending rules-- and those rules extended from the creation and issuance of derivative debt to the zoning decisions by political appointees or elected officials who directly or indirectly had a piece of the action. As far as the latter is concerned, their piece of the action could have been equally Bahamian poker chips or time share units in Nassau, titled in someone else's name.

Part of the plan for future development wrapped up land owners, speculators and local city and county commissioners, and mayors too. That's the story with Florida City Commons, the controversial development planned by Lennar as $1 billion worth of construction activity at the top of the Florida Keys in Miami-Dade. The land, like Parkland, was outside the Urban Development Boundary and required zoning changes locally and approvals by the state.

Because of its location and opposition, with mounting hurdles, Lennar abandoned Florida City Commons to the chagrin, no doubt, of agents like Latterner who had accumulated hundreds of acres in adjacent parcels to the core property owned by a rock miner. There must be ways to balance costs out, because the system called suburban sprawl is enormous.

Today Parkland is proceeding through the expensive and controversial development permitting process, even though Miami has one of the highest foreclosure rates in the nation and with an enormous oversupply of stock. Even though Miami leads the nation in housing price declines-- matched only by Las Vegas.

Yesterday, Lennar announced its first quarter results. The company is trying to put a good spin on its fortunes, but CNN/Dow Jones reports today, "Don't get too excited, some industry watchers warn. When Lennar, one of the nation's top builders, announced early Thursday that it swung to a first-quarter loss, the results contained plenty of red flags: Revenue plunged 62% to $1.06 billion, orders plummeted 57% to 3,045 and the average sales price slipped 8.3% to $278,000."

The housing bust reveals the whole scheme for land accumulation by major production homebuilders is the worst kind of manipulation of the public interest, putting zoning changes ahead of public concerns for infrastructure to keep pace with the costs of development. The only reason Ed Easton is proceeding with zoning approvals is that if he can get those approvals, the value of his land increases.

The blatant manipulation of local government's zoning processes is the reason that Florida Hometown Democracy has gained so much traction among voters and taxpayers.

Miami-Dade county doesn't need Parkland any more than it needed the rampant sprawl that blossomed in farm land throughout South Dade in an explosion of development in the last phase of the building boom-- with no criticism from the mainstream media. Lots of money was made in the run-up to the biggest housing bust since the Great Depression: Wall Street bankers, local developers, and publishers whose stock options nicely pegged to real estate ad revenues.

So, now that the bust is upon us and Florida mired in a recession with acrimony spreading over the rapid shrinking of state and municipal budgets; who among Miami's power elite is on the side of public interest organizations like Clean Water Action opposing Parkland and the April vote by the county commission to move the Urban Development boundary for half a dozen applications that the state has already rejected?

To learn more about land banking by major production home builders and the bad economics, from the Wall Street Journal, read the following:

'Savvy' Ventures
Begin to Haunt
Home Builders
By MICHAEL CORKERY
March 27, 2008; Page C1
Getting caught with excess land during a housing downturn can be fatal to a home builder. Debt payments on the land drain cash, and it's hard to unload at a good price during a downturn.


Big builders looked savvy when they teamed up at the peak of the boom and bought land through "joint ventures" that were supposed to spread the risk associated with owning land, and the builders didn't have to record the debt on their own balance sheets.

Now these arrangements are coming back to haunt them. Some ventures are falling into default and face margin calls from anxious lenders. Default notices were sent recently to two huge joint ventures in Las Vegas -- Kyle Canyon Gateway and Inspirada -- which involved many of the nation's largest builders.

No large builder has more joint ventures than Miami-based Lennar Corp., which reports fiscal first-quarter results Thursday. Lennar had about $795 million of "recourse" debt, which it may have to pay back if certain joint ventures fail, and other guarantees involving 210 joint ventures as of Nov. 30, according to Lehman Brothers analyst Megan Talbott McGrath. Add to that other possible expenses, such as having to pay debt service for joint-venture partners that can't meet their obligations, and Lennar's maximum liability swells to about $1 billion.

It's unlikely Lennar would have to pay all $1 billion, and the company has a cash cushion of about $795 million to absorb many obligations and guarantees. But the potential losses, and the obscurity of these joint venture deals, remain a source of worry. Builders reveal few details about these ventures.

Investors learned a painful lesson last year when the small Florida builder Tousa Inc. had to pay about $450 million to settle a dispute with its lenders in a troubled joint venture. Tousa argued it wasn't liable for much of the debt. It filed for bankruptcy protection in late January.

In a market that has been battered by unpleasant surprises in the housing and mortgage sectors, this is another to look out for.