When BIG BUILDER talked with The St. Joe Co. in January, the conversation hovered around the 850,000 acres the company has on its books at a next-to-nothing cost basis. A lifetime of enormous profits dangled like a carrot in front of the company, if it only could generate enough demand for its dirt. But with the bulk of the holdings anchored in northwest Florida, a region mostly overlooked by the state's demographic and economic gains, it was tough getting the necessary buy in.
But St. Joe's decade-long efforts to seed the area using its resort/residential and commercial construction businesses have paid off. Quite a few local, regional, and national home builders, including David Weekley Homes, have entered into building agreements for various St. Joe communities. And the August announcement that Beazer Homes USA will purchase 681 homesites gave St. Joe the critical mass of contracts it needed to warrant a much-desired exit from home building.
“We will make our money building towns not homes,” says Jerry Ray, senior vice president of communications.
The dissolution of its home building arm will cost the company roughly $10.7 million in charges to earnings, the vast majority of which will be accounted for in the third quarter of 2006. And according to the company's most recent 8-K, dated Sept. 6, this decision will result in a net reduction of 10 percent of its work-force, which Ray estimates at 1,250 people. Moreover, the change moves Britt Greene, president of both St. Joe Towns & Resorts and St. Joe Commercial, to COO, while Chris Corr is promoted from senior vice president of strategic planning to chief strategy officer.
St. Joe's departure from the home building scene is unintentionally well timed, with its number of homes under contract in the first half of 2006 down more than 50 percent year over year.
And although the land market has become sluggish just as the company swivels its focus in that direction, Ray says the profit margins on many of its key lots provide adequate insulation. Whereas its margins on a house linger around the 12 percent mark, Ray says some of its resort lots have margins of between 50 percent and 70 percent.