The end of 2009 sent some builders and developers pushing through land deals before the end of the aught to collect tax refunds that, in some cases, will be larger than the cash collected from the sale itself. Two companies in Florida completed several such deals.
The Jacksonville, Fl.-based St. Joe Company sold off a smidgeon of its thousands of acres of Florida land for $14 million in cash, but expects an additional $27 million in tax refunds to boot, it reported in a recent filing with the U.S. Securities and Exchange Commission.
Avatar Holdings, another land-rich Florida landowner based in Coral Gables, on Dec. 21 sold off three tracts to three different LLCs in which it maintains a minority financial interest and helps manage and a fourth development on Dec. 11 to an unrelated third party to generate $9.2 million in cash and purchase money notes. It expects to receive a $22.2 million in tax refunds, the company reported in a recent SEC filing. The land was on its books for $24 million, yet the tax refund and the sale proceeds add up to $31.4 million in cash for the company.
Jim Jenkins, Shea Homes vice president for land acquisitions, said the practice is also common in California and the greater Phoenix area and to a lesser extent the Las Vegas market.
"To be able to get a cash sale today at 35% to 40% of your cost value is probably [equivalent to a sale at or above the market price]," said Jenkins, "especially for assets in Florida that may be encumbered by CDDs [community development districts]."
St. Joe's move was part of a stated strategy for 2009 to sell its non-strategic assets at a loss that can be carried back to recoup taxes paid on earnings in 2007. The company marketed nationally its remaining land, lots, and a golf course in Victoria Park, a community in Deland, Florida.
Kolter Land Partners won the auction to buy the development from St. Joe for $11 million. St. Joe took a $68 million impairment charge related to the sale which closed Dec. 17, according to St. Joe. The purchase included seven single-family homes and 20 town homes built by The St. Joe Company, 436 fully developed home sites, 88 partially developed home sites, 1,879 undeveloped home sites on 380 acres, a 2.2-acre commercial site, and a Ron Garl-designed golf course with club house and equipment, Kolter said.
"We are pleased to acquire such a quality project with over 1,200 existing residences, which establishes a great foundation for our plans ot compelte the development of Victoria Park," said Jim Harvey, president of Kolter Land Partners. Kolter plans to finish selling out the community's existing inventory, supporting the existing community's builders and then start bringing in new builders after the first of the year.
Shea Homes, which has been building houses in the Victoria Gardens active-adult section of the master-planned community, was also a bidder, said Jenkins. Before selling the community to Kolter, Shea bought the 40 remaining finished lots in the active-adult section, Jenkins said.
St. Joe on Dec. 15 also sold off the bulk of its remaining assets in the St. Johns Golf and Country Club development outside of Jacksonville, including a golf course, clubhouse and maintenance facilities for $3.6 million. It had sold out the community's residential lots earlier in the year. St. Joe recorded $3.6 million non-cash impairment on the sale of these assets.
Meanwhile Avatar was selling on one hand and buying on another. The home builder has all but stopped building houses and is focusing on buying land at a discount to hold for the next rise in the cycle, it has announced a number of times.
The company recently sold new stock to fuel its operations and new land purchases, and the tax refund on the sale of some of its properties this month will also go towards that cause. In September, Avatar bought a section of a former Levitt Traditions development in St. Lucie County, Fla. It spent $7.3 million for 87 completed and partially completed homes, 267 developed lots, 364 partially developed lots, and roughly 400 undeveloped master-planned lots.
"The sale of the land gives Avatar the cash from the income tax returns to actually go and purchase other land and diversify their land holdings," said Shea's Jenkins, who says the practice has become a common strategy for a number of builders.
"For some companies that were sellers last year and the year before, it will still make sense to be a seller at the end of your 2009 fiscal year even as they are buying in different locations," he said.
Avatar still has more than 17,000 acres of developed, partially developed or developable residential, commercial and industrial land in its portfolio. It also has more than 15,000 acres of preserves, wetlands and open space that isn't developable now. The land is concentrated in Florida and Arizona, but company filings indicate it's looking to buy land in California as well.
