Those looking for signs of spring in the real estate and housing markets can take note of three new corporate births this week made possible by the death of LandSource Communities Development last Friday.
In addition to the reincarnation of LandSource out of Chapter 11 free from debt, with $90 million in cash and a new name (Newhall Land Development), two other companies also have emerged: Five Point Communities Management and The New Home Co.
Five Point Communities Management sprang directly from the roots of LandSource on July 23. Five Point will be run by former Lennar land wrangler Emile Haddad in partnership with Lennar. The new company will manage Newhall as well as four other Lennar assets in California: El Toro in Orange County and Candlestick Point, Hunters Point, and Treasure Island, all in San Francisco.
H. Lawrence (Larry) Webb, the former John Laing Homes CEO who has worked as LandSource's co-chief restructuring officer during LandSource's bankruptcy, will go back to doing what he loves--running his own home building company, appropriately dubbed The New Home Co.
Both Haddad and Webb are reveling in their chances to start fresh, with new enterprises that are free from the crippling debt racked up during the go-go years of home building and are now poised to benefit when the market begins to climb out of the abyss.
"We are going to be [a] private [builder] with no old baggage," said Webb, whose former company, John Laing Homes, is being liquidated in bankruptcy. "See me in a year or so, but I think it's OK. I think our timing is pretty good."
"I personally believe that in some markets we are definitely starting to come very close to bouncing on the bottom," agreed Haddad. "I told the team in our staff meeting that we have a very unique opportunity to start from a clean slate with an asset that has been repositioned very well from a balance sheet point of view."
Haddad's next focus for Newhall is readying the 15,000 acres of Santa Clarita Valley land just 30 miles from Los Angeles, for development once the market returns. "What I really want to do is to take the time to build a legendary company right now," said Haddad. "My focus now is on execution. We have great assets. What we cannot control is what the market is going to do for us."
Haddad said Newhall will be ready with entitlements in place whenever the market comes back. "We are pushing forward with the mapping right now and the engineering, and we have put ourselves in the position to start delivering home sites when we think the market has visibility," he said. "We are going to be ready whether the market will come back in two or three or four years."
He'll bring along his longtime team of 22 from Lennar. "This team has worked with me on these joint ventures for the last 10 years plus," said Haddad. "Some of them came with the first [California] acquisition [Lennar] made back in 1996."
While Lennar has an interest in Five Point as a partner with its former employee, Haddad has controlling interest. Lennar has a history of creating joint ventures to hold land off its home building balance sheet. In fact, LandSource was originally billed as a national land-holding company for Lennar.
In recent months, CEO Stuart Miller has talked about creating another separate company, funded by private investment capital, to buy distressed land during the downturn. Haddad said it isn't clear yet whether Five Point will be one of the companies Miller has mentioned.
He said Lennar has discussed creating a couple of different independent vehicles, one that buys distressed land and one that does these Newhall types of deals. "This could be one of the vehicles that Stuart has spoken of," Haddad said.
As manager of Newhall, Haddad will be working with a new set of bosses, which is a group of investors cobbled together by Barclays, which ended up with the majority assets of Newhall as a result of the bankruptcy. They include: Anchorage Advisors, Marathon Asset Management, Affiliate Investment Funds of OZ Management, Third Avenue Real Estate Value Fund, Third Avenue Special Situations Fund (Master), and TPG Credit Management.
"They have been very good to work with" through the bankruptcy, Haddad said. "They are not your typical bankers. They are hedge funds, and they are very much used to getting into a situation like LandSource. They are very smart people, very quick studies, and the nice thing about them is that they will be the first to tell you when they don't know something."
Haddad had some experience working with the new majority owners during the bankruptcy negotiations, which were contentious at times. But he said his experience with the bankruptcy process when he was an executive at a Canadian real estate conglomerate served him well. "I probably had a little bit more calm about it than some people expected me to have," he said. "One, because I had a lot of confidence in the [LandSource] management team and because I've been through the process ... and I know how things unfold."
Haddad was happy that an overwhelming majority of LandSource's investors agreed to the reorganization plan. "I think that in light of the circumstances, in light of the market, I think this is going to be looked at as an example of a deal that did not go into liquidation."
Still, he's looking forward to calmer times. "I am looking for much less drama in my life right now," he said.
That's not likely to happen. Even if LandSource/Newhall has calmed down, managing the other assets of Five Point will not be easy, given that they include master plans in urban areas with numerous development challenges.
Luckily, "I don't like simple," Haddad said. "Each one creates a once-in-a-lifetime chance to create a legacy," he said. "When you build a tract of homes and it's done, you can feel good about it. But it's different with Newhall and Candlestick and El Toro where you do more than build homes: you build community."
Meanwhile, Webb is looking forward to getting back to building homes with The New Home Co., which already has a partnership agreement with The Irvine Co. to build homes on its land. "It's a fee deal; they have picked six builders, of which we are one," Webb said. "It's something that they have never done before."
The Irvine Co. would not comment on its move into hiring builders to build out its land.
"It's a nice way for us to start," said Webb. "It isn't what we want to do forever, but in this economy, it's a pretty good way to go."
Webb said The New Home Co. is looking at buying land in both Northern and Southern California and eventually spreading to other Western locations.
"We will buy options, and we will buy land, and we are also talking to a lot of financial institutions about doing some sort of partnership or venture or management with them," said Webb. "Probably we will be taking most of the fall to lay the groundwork. It will primarily be California and Phoenix and about anywhere there is sun or water or both," but probably not beyond Texas.
"Our big challenge will be that most of the public companies have a lot of cash," Webb said. "We are not going to be overly aggressive on land. We will focus more on move-up than entry-level. We will not be way out on the fringe [of cities] or doing the lowest-cost housing. We won't go for volume. We'll take our time and try to make good investments."
Webb said he plans to consider some of the Laing assets that are being liquidated, especially since they are familiar to him and his team, which is mostly made up of former Laing executives.
Wayne Stelmar will be CFO of New Home, Tom Redwitz will run the Southern California division, and Kevin Carson will run Northern California, all three formerly of Laing. Joe Davis, formerly of The Irvine Co., will run the land portion of the company.
Webb said he is working to form partnerships with banks looking for help to get the value out of assets they have repossessed during the downturn, but he acknowledged he has plenty of company in seeking bank work. "I bet almost every private builder has said they are going to do fee-build with the banks, and I haven't seen much of that," Webb said. But he thinks New Home will have an advantage.
"We are prepared to self-fund," Webb said. "We have been talking to people, family groups as well as hedge funds, so we can self-fund. Our partnership group has been really fortunate over the past 10 years, and we are willing to invest money in it. So, if most banks have issues, I hope they are willing to trust us."
Teresa Burney is a senior editor at BUILDER and BIG BUILDER magazines.