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:
Goes to show you that government run anything, including the employee run union investments cannot match the ‘skills’ of the builders and banks that gave us this fiasco, and continue to walk away with the prize while we…the workers and taxpayers….. take it in the shorts.
Hoocoodanode in early 2007 that real estate was overvalued? Hoocoodanode??????
This would be hilarious if we weren’t on the hook for Calpers’ losses.
Why is there a state-run hedge fund anyway? Let employees make their investment decisions.
“…it can create some tension with partners.” Talk about diplomatic understatements!
Lennar is the one, who unlike Barratt, when they saw the signs on the wall, wrapped the last of their Bressi Ranch homes into a package for investors at what was perceived at the time to be a bargain, took the money and ran. Let’s just say most of the investors didn’t do too well so far.
Barratt, whose CEO was quoted (complaining) that he wouldn’t reduce prices because it “ruins the market” -that buyers then just expect the price to come down more next week and the week after. So, through this wisdom, he ended up losing them to the bank instead.
I remember thinking Lennar was very smart to be nimble enough to get out.
A million years ago I used to rent from a retired teacher, who, between his own rentals and his Calpers account was doing extremely well. I was wishing at the time that I had gone into teaching, so I could end up like him!
Given Calpers penchant for RE investments, I suspect until recently, their returns were very good for a long time.
You gotta know when to hold ’em…know when to fold ’em.
Or maybe the one about “all your eggs in one basket” is more apt here.
The deal would value the land at about 18% of its value when Calpers made its 2007 deal with Lennar and LNR.
Now that is a haircut!! That is the same haircut as a $1Million house going for $180k…