Miami-based Lennar Corp. still counts Orange County as one of its most prized markets, even though its biggest developments here are on hold.
But Lennar’s financial partners, which have a much bigger stake in the homebuilder’s local developments than Lennar does itself, might see the slow OC housing market differently.
Lennar, the country’s fourth largest homebuilder by revenue, announced its first quarter earnings last week with a loss of $155.9 million on sales of $593.1 million. Revenue was down 44% from a year earlier, but the lower sales still beat most analysts’ modest expectations.
The quarterly earnings report was notable locally,where Lennar’s day-to-day operations are run from Aliso Viejo,for more than just the bottom line figures.
For the first time, Lennar raised the veil on its off-balance-sheet joint ventures program, a funding mechanism used by the builder that’s been criticized as overly secretive by some. One well-known, albeit controversial, activist has gone further, saying the ventures are used by the company to conceal fraud.
Just-disclosed details show that OC is the epicenter of Lennar’s joint venture program, which the company uses to build and develop land in pricey markets by spreading risk to financial partners.
Of Lennar’s six largest joint ventures, based on the company’s investment, three are in OC: Anaheim’s Platinum Triangle, Irvine’s Heritage Fields and a pair of condominium towers being built near John Wayne Airport.
Lennar has invested nearly $204 million in the three projects, which currently are entitled for about 8,600 homes.
Other investors have anted up much more in the three OC projects, which in total have about $1.9 billion in assets tied to them.
In the Platinum Triangle, its joint venture counts close to $271 million in total assets, according to details released last week. Lennar’s investment in the mixed-use development near Angel Stadium of Anaheim is $95.6 million.
Lennar and its partners reportedly paid close to $250 million for the land in 2005.
The builder still has about $75 million in recourse debt tied to the project, which has been delayed indefinitely due to the housing downturn. That’s the most debt it has at any joint venture.
At the former El Toro Marine base, a joint venture that counts $1.4 billion in assets controls the 3,700-acre project. Lennar has invested only $83 million into the massive venture,$12 million less than it has at Platinum Triangle,and doesn’t appear to have any debt for the project directly tied to it.
In Irvine’s Central Park West housing development along the San Diego (I-405) Freeway, a venture including Lennar and Canadian condominium builder Intergulf Development Group counts assets of $184 million.
Lennar has invested $25.1 million for the dual high-rise condo venture, where 240 homes are being finished up. It also has another $50 million in debt tied to the property.
The majority of the partially finished, 1,400-home Central Park West development,which is mothballed due to the slow market,is not part of the Intergulf venture, according to Lennar’s data.
Other than Intergulf, Lennar did not specify last week who its other partners in the OC deals were.
The company’s previously cited LNR Property Corp., Rockpoint Group, Blackacre Institutional Capital Management and the computer world’s Michael Dell as backers in Heritage Fields.
Other financial partners at some Lennar ventures include Morgan Stanley, MSD Capital LP and Stockbridge Real Estate, the company said last week.
Previously, Lennar said confidentiality agreements with venture partners prevented it from disclosing most of the terms of these deals.
The company began changing its tune recently, thanks in part to infamous San Diego investor Barry Minkow.
Minkow, a convicted felon, runs San Diego’s Fraud Discovery Institute Inc., a company that investigates suspected corporate fraud, and has taken on OC-based companies in the past. In January, he accused Lennar of treating “their joint ventures exactly like a Ponzi scheme.”
Lennar denied Minkow’s allegations, but still saw a big stock drop as a result of his claims. The company had a recent market value of about $1.2 billion.
The builder had already been working to reduce its reliance on joint ventures before Minkow’s allegations. It has cut the total amount of these ventures from more than 260 at the peak of the market in 2006 to 95 now.
For Lennar’s investors, the ventures “are a long-term opportunity, but (provide) short-term uncertainty” due largely to their heavy debt loads and the chance that land values will keep falling, according to Dennis McGill, of Cleveland-based Zelman & Associates.
Like most builders with undeveloped land on their books, Lennar’s believed to have taken some impairments on the land values for each of the three projects, due to the slumping market.
How much of an impairment is unknown. The company won’t disclose the write-offs it has made for individual assets, Chief Executive Stuart Miller said last week in a call with analysts.
At least one more joint venture could be formed by the builder.
Lennar is said to be working with other potential investors and creditors to buy the assets of LandSource Communities Development LLC, which currently is in bankruptcy. LandSource’s biggest possession is the 12,000-acre Newhall Ranch north of Los Angeles.
Emile Haddad, Lennar’s chief investment officer, could be tapped to run the company if the deal goes through, according to reports. He’d also remain involved in the development of El Toro and other big projects for the builder, according to sources.
If Lennar makes the deal, its investment would include no use of debt, or a limited amount of debt, according to Miller.
