Lennar Not Killing Anaheim, Irvine Projects

ABSTRACT

Despite speculation, the delays at those two projects are strictly strategic decisions and not due to financial problems or a lack of faith in OC, according to Emile Haddad, the company's chief investment officer. The recent quarterly loss, land write-offs elsewhere in the country and signs of a slumping housing market continuing well into next year have prompted questions about the company's commitment to its two biggest projects here.

REAL ESTATE: Housing slowdown makes builder evaluate developments

Lennar Corp. isn't planning a fire sale in Orange County.

Company officials said the Miami-based builder is staying the course on the homes it has under way here and on the massive projects the company is planning in Anaheim and Irvine.

That isn't to say the company's local operations aren't feeling the effects of the weak housing market.

The company late last month reported a loss of $514 million in the third quarter, compared to earnings of $206.7 million a year earlier. Revenue for the quarter fell 44% to $2.3 billion.

Sales are slow at its 1,500-home Central Park West development near John Wayne Airport in Irvine. And Lennar's Aliso Viejo office-where most of the company's day-to-day operations are run-has seen its share of layoffs in recent months.

The company also is seeing delays at its largest local developments-Platinum Triangle's A-Town in Anaheim and Irvine's Great Park. Those two projects are slated to include a combined 15,000 homes or so, which are set to be completed during the next 10 years.

Despite speculation, the delays at those two projects are strictly strategic decisions and not due to financial problems or a lack of faith in OC, according to Emile Haddad, the company's chief investment officer.

"Orange County is very unique," Haddad said. "Ownership of the land sits largely in the hands of three companies, and none of them is under pressure to discount the land. The Irvine Co. doesn't need to liquidate. Tony Moiso (of Rancho Mission Viejo LLC) isn't going to do that, and we aren't going to do that."

Lennar's shares are down more than 50% for the year, and the company now counts a market value of about $3.5 billion. The company isn't overly indebted, Haddad said, noting that the company has one of the lowest debt-to-cash ratios - 33.5% - in the home-building sector.

"We have a history of coming out of down cycles in a better position because of a strong balance sheet," he said.

The recent quarterly loss, land write-offs elsewhere in the country and signs of a slumping housing market continuing well into next year have prompted questions about the company's commitment to its two biggest projects here.

Comments from Irvine officials last month increased the speculation about the vitality of the Great Park. A recent memorandum from Councilwoman Christina Shea suggested that Lennar's Heritage Fields development at the Great Park might be put up for sale.

Haddad said that's not the case.

"I can say absolutely that there has been no discussion, and there is no plan" to sell Lennar's Great Park stake, Haddad said.

"That (idea) has never been entertained. This is a very deep, diversified partnership," including a number of well-funded private investors, Haddad said.

Lennar Chief Executive Stuart Miller said the company bought the former El Toro Marine base with the expectation of a market downturn.

El Toro "is moving forward as underwritten," Miller said during the company's quarterly call with analysts.

"We're going to build (Heritage Fields) though a couple of cycles," Haddad said.

Lennar's development plans for the Great Park should be submitted in mid-2008. That's when the city could take up Lennar's proposal to increase the number of homes it wants to build at the former El Toro Marine base from 3,625 to 9,500.

That time frame would allow the company to begin putting in roads and sewer systems at Heritage Fields by the end of 2008. Depending on market conditions, homes could begin in 2009.

While the time delay in construction could help the Great Park project, Lennar has to make a quicker decision on A-Town.

City officials said last month they were told by Lennar to expect up to a year's delay on the company's ?-Town project, the largest individual project within the 9,000-home Platinum Triangle.

Haddad says a concrete decision on whether the company will begin moving forward on A-Town's 3,500 homes, or if it will postpone construction further, will be made in the next two months.

"We're evaluating the inventory in the marketplace. You don't want to add to the inventory in a market where there's already too much there," he said.

Sales at the first Platinum Triangle condominium project-Windstar Communities LLC's Stadium Lofts-have been slow in recent months. Other projects originally planned as condos now are being developed as apartments.

Once construction does begin, mid-rise and low-rise condos are likely to be built before any high-rises at ?-Town, Haddad said.

At Central Park West, homebuilding is well under way at the former Parker Hannifin Corp. site just off the San Diego (1-405) Freeway. The first homes there will be ready for move-in by mid-2008.

Sales are slower than expected, both for the two condo towers at the development, as well as for the townhomes and lofts being built on the 43-acre site. But other than offering some added features, buyers shouldn't expect to see too much in the way of price cuts there.

"We're not going to force any sales," Haddad said. "We have the ability to hold off. It's a unique asset, in a unique community."

Haddad won't predict how long the housing slump will last, but notes that its symptoms are similar to those seen in prior downturns. In the meantime, Lennar will focus on the things it can control-including its balance sheet, inventory management, asset management and costs, he said.

"The good news is that the economy is still good, so far, and we haven't had the loss of jobs," Haddad said. "If the economy holds up, at some point-and I don't know when-that inventory will be absorbed."

Haddad: "We have a history of coming out of down cycles in a better position"

Central Park West: Lennar is moving full speed on project; evaluating others in the area


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