Last week, a press release in support of the $700 billion financial bailout attracted my attention. It was from the National Association of Home Builders (NAHB), the megachurch of the building industry. The religious inference isn't made lightly: the piety of builders and developers in light of the housing crash they helped to foster deserves close attention.
"Falling home prices, mounting foreclosures and a frozen credit market have taken a severe toll on the nation's economy. As the financial markets struggle, mortgage credit costs are increasing and home builders are finding it more and more difficult to obtain any business credit. By providing a market for troubled mortgage assets, the financial rescue package will restore confidence in global financial markets and allow credit-worthy home buyers, builders and other small businesses access to credit," NAHB said in its letter to members of Congress.
"It's time to set aside politics, self-serving interests and ideology and unite as Americans in support of this legislation," Dunn added.
But how did we get here?
At the height of the building boom, in 2005, a series of ambitious developments for suburban sprawl began to take shape in the Miami-Dade development lobby, pairing hubristic production home builders who had minted fortunes from South Dade and Kendall farmland with traffic engineers, "environmental" land use lawyers and planners, and a parade of lobbyists paid with "success" fees in greasing zoning changes and permitting.
To a very large extent, these Miami builders-- represented by trade associations like the South Florida Builders Association or the Latin Builders Association and local business guilds like the Chamber of Commerce and the Vision Council-- had organized the political pecking order in Florida's most populous county and in Tallahassee, too. Jeb Bush was their choice for governor in 1998, and it was Jeb-- more than any other Florida politician-- who combined the knowledge of land development and related infrastructure with a certainty that eliminating barriers and regulations to growth was the best way to stimulate economic growth.
In Miami Dade, a counter-movement began called Hold The Line; focused on developments outside the Urban Development Boundary-- a line created by county planners and in accordance with state planning guidelines that intended to separate areas already served by infrastructure from open space and farmland. Changing the Urban Development Boundary required both considerable investment by prospective developers and political influence.
Now that the building boom is shattered, the remnants of that frenzy are still playing out-- land speculators and developers are trying to off-load land inventory outside the Urban Development Boundary. Miami's premier and largest production homebuilder, Lennar Corporation, has been at the center of controversial developments outside the UDB: its plan to build more than 5,000 homes and related commercial development in Biscayne Bay wetlands, called Florida City Commons, ran into a wall of opposition-- but not before the developer had succeeded in pushing the annexation of more than one thousand acres by Florida City, whose mayor Otis Wallace was brother to both the Lennar lobbyist, Sandy Walker, and to the county commissioner, Barbara Jordan, who took the lead in helping push the project through county zoning hearings.
Another of the big production homebuilders seeking to push sprawl beyond the Urban Development Boundary in Miami Dade was Texas' DH Horton Homes, with a project called Providence. Its plan enlisted a platoon of lobbyists, too, including former Congresswoman Carrie Meek.
With some of the worst traffic congestion in the nation, Miami Dade would seem to be a logical candidate for focusing public resources and attention on infill development. Indeed, for more than a decade "Eastward Ho!" was presented by coalitions of right-thinking planners and government interests as a way to change the equation of growth from sprawling development to compact, urban living in South Florida.
What is important to understand, though, is that financial model for growth that was perfected through the 1990's and built to a frenzy in the early 2000's had settled on cookie-cutter developments that meshed perfectly with the packaging of mortgages and loans into pools. The entire financial arrangements of the development industry in Florida matched the rapid growth of suburban Las Vegas, or Pheonix, or Dallas or California's Central Valley-- often by one and the same corporations.
To the extent that a new model for development-- compact communities centered around transit routes and hubs-- existed, it only existed begrudgingly in the eyes of the builders and lobbyists. There was too much money to be made, and quickly, in rezoning farmland for sprawl.
Today's national economic crisis has layed bare the fraudulent arrangements of sprawl like a beached whale decomposing at the tide line.
But still, in zoning processes that are being pushed by Lennar for Parkland and its adjacent neighbor, Krome Gold-- it is easy to see the scrambling at work to release the maximum possible value for a development plan that has no market and no horizon for possible redemption.
Sunday, Oct 5, 2008
Posted on Sat, Oct. 04, 2008
D.R. Horton unloading land in California
By MICHAEL CORKERY
The Wall Street Journal
As it struggles through the housing crisis, Fort Worth-based D.R. Horton is unloading land across California at big discounts.
Horton, the nation’s largest home builder by unit volume, is jettisoning thousands of house lots in far-flung areas, partly to reap the tax benefits from selling property at a loss.
As builders try to survive one of the worst housing downturns in U.S. history, land buyers and brokers expect more such tax-motivated fire sales of undeveloped land this year. That could set a new low for land prices in California and other troubled housing markets. The sales could also indicate a shift for big builders: from developing huge swaths of land in the exurbs to building smaller developments closer to metropolitan areas.
Signs of the times
Horton two weeks ago sold about 2,000 house lots in Desert Hot Springs, a blue-collar community in the far reaches of Southern California’s Inland Empire, for $7.8 million, according to county records. William Shopoff, a land investor who bid unsuccessfully for the property, says Horton paid about $110 million for the land before expenses for grading and installing infrastructure such as sewers, to prepare the property for development.
Horton officials declined to comment for this article.
Who will benefit
Buyers of some of Horton’s land in Southern California include a venture between Foremost Communities and Starwood Capital Group, which together bought 250 house lots from the builder, according to a person familiar with the matter. The investors plan to hold the lots until the market recovers, the person said.
As new-home sales sank to a 17-year low, builders can no longer count on doubling their investments by buying undeveloped parcels, preparing the property and selling the homes on it. Horton, which built nearly 53,000 homes at the peak of the housing boom, in 2006, has posted quarterly losses since the April-June quarter of last year.
What it means
The fire sales are a silver lining in those clouds. Tax law allows companies to apply losses from land and other asset sales to past profits and reap a tax refund. More sales are expected soon because the companies can apply losses only to profits earned as far back as two years, and 2006 was the last profitable full year for most builders.
Horton told investors in June that it expects to receive a tax refund of $519 million over the next two years. At the end of last year, Lennar Corp. pocketed a $200 million tax refund after taking a 60 percent discount on its sale of 11,100 house lots to a joint venture it formed with Morgan Stanley.
"There’s going to be a rash of builders shedding assets," said Tom Reimers, executive vice president of O’Donnell/Atkins, a real estate advisory firm in Irvine, Calif. "It’s all tax-motivated."
By dumping land, builders are chasing cash that allows them to keep current with lenders and pay overhead expenses.
Horton had $851.2 million in cash on hand as of June 30, the end of its fiscal third quarter, up from $270 million at the end of last year, according to research firm Zelman & Associates. Horton owes about $210 million in annual interest, according to Zelman.
What’s ahead
So far, most publicly traded home builders have managed to muddle through the housing mess. One reason is the builders’ financing arrangements. Many such large companies’ long-term corporate debt doesn’t come due for another year or two, giving them breathing room amid the credit crunch. The builders typically don’t need lender approval to keep building as long as they honor certain debt agreements at a corporate level.
Most closely held builders, on the other hand, use project-specific financing, in which they need a bank’s approval to start each development. Lenders have cut off credit to most small builders, forcing many to file for bankruptcy protection. Analysts expect that more than half of the nation’s small and midsize builders will fold during the housing downturn, which has already forced such private companies as Levitt & Sons of Fort Lauderdale, Fla., and Kimball Hill Homes of Rolling Meadows, Ill., to file for bankruptcy.
Still, big builders like Horton aren’t out of the woods. Horton needs to pay off $585 million in debt in 2009, $362 million in 2010 and $450 million in 2011, according to Zelman.
Reduced expectations
Horton’s recent land sales could also reflect an industry shift. Over the next few years, builders will likely construct smaller developments closer to large metro areas, where house prices are expected to recover faster than elsewhere. That contrasts with 2005, when builders bought massive parcels in California’s exurbs and earned big profits as land values soared.
Home Builders Demand that Lawmakers Enact Financial Rescue Plan
10/03/2008
WASHINGTON -- With credit markets frozen and the economy unraveling at an alarming rate, the nation's home builders Wednesday called on Congress to enact the financial rescue plan now to avoid a complete meltdown in financial markets.
NAHB represents 235,000 member firms that construct about 80 percent of new housing units constructed annually. Its members range from small family-owned businesses that construct 10 or fewer homes per year to large publicly held companies such as Pulte Homes, Centex Homes, Lennar Corporation and K. Hovnanian Homes that construct tens of thousands of units annually.
In a letter to every member of Congress, NAHB said that the housing industry is fully united in its support of the rescue plan now before Congress.
"Falling home prices, mounting foreclosures and a frozen credit market have taken a severe toll on the nation's economy. As the financial markets struggle, mortgage credit costs are increasing and home builders are finding it more and more difficult to obtain any business credit. By providing a market for troubled mortgage assets, the financial rescue package will restore confidence in global financial markets and allow credit-worthy home buyers, builders and other small businesses access to credit," NAHB said in its letter to members of Congress.
"It's time to set aside politics, self-serving interests and ideology and unite as Americans in support of this legislation," Dunn added.
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