from the WSJ:

By 2006, Lennar decided that the good times were nearing an end for the housing industry. That summer, Lennar began to cut home prices to boost sales and generate cash in preparation for a downturn. Lennar also looked for ways to jettison land.

Lennar was facing a potentially serious cash crunch, in part because it was on the hook to pay back as much as $1.7 billion in debt used to finance joint ventures. Calpers, which manages pensions for California’s state workers and public employees, was in the market for land. Lennar wanted to sell most of its stake in the Newhall Ranch.

In early 2007, Lennar and LNR agreed to sell 68% of the venture, called LandSource, to a Calpers investment vehicle for $970 million. At the same time, LandSource borrowed $1.5 billion, distributing cash to stakeholders. All told, Lennar and LNR each netted $707 million from the deal.

Sixteen months later, with the housing recession raging, LandSource sought bankruptcy protection, which wiped out Calpers’s majority stake, along with the remaining stakes of Lennar and LNR. Calpers has said it never anticipated the housing downturn would be so severe.

In LandSource’s bankruptcy reorganization, Lennar has proposed buying 15% of a new venture that will hold most of LandSource’s assets, including the 15,000 acres near Los Angeles, for $85 million. The rest of the venture would be owned by a group of LandSource’s largest creditors.

The deal would value the land at about 18% of its value when Calpers made its 2007 deal with Lennar and LNR. The new venture would have $100 million in cash and no borrowed money.

“When assets are under stress, it can create some tension with partners,” says Mr. Haddad. “Overall, I feel very good about how our ventures have performed.”

Full transcript:


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