Thursday, 27 December 2007 05:00

Lennar's Voodoo is now showing up in the popular media

Lennar has been in the news as of late, with the running a piece on joint ventures, and the Chicago Business News (hat tip to Michael for pointing this out) doing a piece on Lennar recieving a foreclosure filing. The followers on my blog were alerted to the dangers of the JVs, Lennar' in particular. several times over the last few months. The new media rags are late to the party. We performed a very, very extensive analysis of Lennar's off balance sheet holdings and liabilities, much of which is easily missed by just studying the 10Qs, in Voodoo, Zombies, Lennar�s Off Balance Sheet Accounting and Other Things of Mystery & Myth (a must read, IMO, for anyone who follows this space - Enron redux). I plan to follow up on Lennar's 50% haircut does not make them look any better and Lennar gets a haircut, a shave, and a mustache trim with a fully fleshed out calcuation of their position, which I have had on my desk for weeks, but unfortunately have not had a chance to post. I will dedicate today to putting out content, so stay tuned.

From the "Of course, not everything is in the financials.

On the basis of conversations with several industry sources familiar with some of the ventures, it appears that there are several issues set to unfold at the company.

A good portion of the JVs -- mostly the ones in better locations -- have 10% to 20% equity from Lennar. But some of the ventures are 50/50 partnerships with weaker secondary players, says a former Lennar employee.

"Some partners had no money at all but had a piece of family land," the person says.

Such deals were in tertiary markets where landowners had land with a low cost basis but had no capital to build out the project and make money. That's where Lennar would step in, by agreeing to pay much of the development cost.

In some of these deals in secondary markets, banks are now likely becoming uncomfortable with the value of the underlying collateral. "Banks are going to start calling guarantees," the person says. "

And the local piece from the Chicago Business News: "RBC Centura Bank filed suit late last month against Lennar Corp. to collect $14.7 million on a construction loan for Creekside Crossing. The 278-acre, 615-home development on former cropland has sold poorly amid the worst suburban residential market in at least 15 years...

Plainfield was growing rapidly until the residential market hit the skids about two years ago. The village will issue 431 building permits for single-family houses and townhouses this year, down 57% from 2006, Mr. Hovany estimates...

Sitting next to cornfields stretching to the western horizon, the development at Renwick and Drauden roads is now a desolate place. Fewer than 100 duplexes and single-family homes have been completed or are under construction, and its roads meander mostly through empty lots.

In June 2004, RBC Centura agreed to lend $26 million to a Lennar-led venture to finance the project. Lennar improved the land, adding roads and sewer and water lines, planning to sell off most of the lots to other homebuilders.

The loan, which was modified four times, doesn't mature until February. But the venture defaulted by failing to sell lots according to an agreed-upon schedule and failing to maintain letters of credit, according to the complaint filed in Will County Circuit Court."

Last modified on Thursday, 27 December 2007 05:00