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Builders have been able to keep joint ventures off their balance sheets until now. But those joint ventures on land assets that now sport significantly lower valuations are coming home to roost. Lennar unloaded the bulk of its obligations in LandSource in 2007, but it still has a stake in the venture. Barclays' motion to liquidate will have ramifications for the builder, and does not bode well for other builders with significant JV exposure.
Home Builder’s Hidden Time Bombs. “Many large builders took minority stakes in joint ventures, which let them stockpile land for future needs while keeping billions in debt off their balance sheets…Center for Financial Research & Analysis [CFRA]: Thirteen of the country’s biggest homebuilders on average have debt to capital ratios that look way uglier with this off balance sheet debt factored in, as much as 977 basis points higher than typically reported… CFRA: Lennar (LEN) and NVR (NVR) have the most off-balance sheet debt. Also, NVR in each of the last three years bought developed lots from a company controlled by a board member… CFRA estimates Lennar is on the hook for up to $910M of $5.6B in debt through partnerships not on its books.” (Fox Business, Oct. 17)
Barclays Fails to File Disclosure Statement to Bankruptcy Court in LandSource Case. “Barclays Bank, which represents more than 100 banks that bought pieces of LandSource's debt, filed [a liquidation] plan on Sept. 13, after the 120-day period during which LandSource had the exclusive right to propose a reorganization plan without facing opposing plans for creditors expired. [Lawyers representing LandSource] said LandSource had agreed not to ask for an extension of the 120-day window of exclusivity unless it met certain conditions, including getting the company's three equity owners, Lennar Homes, LNR Property Corp., and a partnership of CalPERS, Weyerhaeuser Real Estate (WY), and McFarlane Partners, to agree to a plan.” (Big Builder Online, Oct. 17)
Lead Bank Seeks Liquidation of LandSource. “When Lennar and LNR Property sold the majority of their interest in LandSource… in February 2007, it was appraised at $2.6 billion. By January 2008 that value had plummeted to $1.8B… Lennar and LNR each retained a 16% interest in LandSource after the sale.” (Big Builder Online, Oct. 16)