Photo: COURTESY JIM WALTER HOMES Once the underpinning of Florida-based Walter Industries, home building subsidiary Jim Walter Homes is shuttering its doors after 62 years in business. Management made the announcement this morning.

Immediate fall out from the decision includes the loss of 230 jobs across 12 states, including 45 positions at the company's headquarters in Tampa, Fla. Moreover, management stated that it expects the closure to trigger a pretax charge of between $8 million and $10 million to the company's balance sheet.

As of Dec. 31, 2008, the company had roughly 150 homes under construction.

"This is 20 years in the making," said Larry Comegys of the announcement. Comegys, now a managing director for financial advisory firm Algon Group, was president of Jim Walter Homes from 2004 to 2005.

Like Levitt & Sons, which filed for bankruptcy in November 2007, Jim Walter Homes was formed in the wake of World War II as soldiers returned from the war and needed housing. According to company information, Tampa entrepreneur Jim Walter founded the company in November 1946, when he used $395 in savings to buy and sell his first home, for a profit of $300.

However, unlike Levitt, which grew to renown through its development of the first master planned communities known as Levittowns, Jim Walter's success was rooted in its corporate M.O. as an on-your-lot builder. This strategy made home buying more affordable by leveraging buyers' sweat equity; people bought a lot, the company put up the shell of a home, and the buyers finished the home out.

The business flourished under the model; in 1985, the company was the largest builder in the U.S. by unit volume, closing roughly 10,000 units that year, Comegys said.

But the evolution of the housing industry, which effectively turned home builders into community developers, challenged the business model. Home builders began making most of their money off of land and were able to pad margins through the sale of options and upgrades in design centers. With a focus on scattered lot development and shell construction in "D" locations, the company fell behind the power curve.

"Even in places in rural Mississippi, those people had no interest in finishing the bathroom off," Comegys said, noting that most of the company's volume was coming from that particular area.

The company moved to catch up, opening its first subdivision in 2002, followed by few more, mostly on land owned by Walter Industries. But by 2004, the home building operation had become a drain on the diversified company's profitability.

Further hindering a complete revamp was the home building company's tie in to its sister financing arm, which was heavily focused in the subprime mortgage market.

In 2008, as metallurgical coal prices achieved record highs and housing experienced new lows, the corporate management team took steps to unburden itself from the declining profitability of both its home building and financing businesses. In mid-February, management announced that it would close nearly half of its sales branches as a first step toward dividing its financing and home building businesses, spinning them off separately, and ultimately unloading them from the balance sheet.

The individual spin offs of the financing and home building businesses suggested that management intended to sell off the entities discretely. However, by disconnecting the relationship between home building and financing, some analysts worried that the company could be sacrificing not only value, but a sale as well.

Their fears were confirmed as no buyer materialized. Some industry experts argued that, with a meager land portfolio and an inefficient if not outdated business model, there was nothing of value to acquire.

In a release, the company stated, "Efforts to sell the business were unsuccessful in the face of the unprecedented conditions in the housing industry and tightness in the credit markets."

"Even if the markets had continued hot, they'd still be shutting the company down," Comegys said. "They just weren't getting the traction they needed. It would've been a tough company to sell even in good times."

In contrast, corporate management was able to find a way to monetize its financing business. In November, it struck a deal to merge its existing financing business with Hanover Capital Mortgage Co., a New Jersey-based REIT. Management expected the merger to generate more value during a spin off that is expected to close this quarter.

"Once we complete the separation of our financing business, Walter Industries will be repositioned as a 'pure play' natural resources and energy company," Walter Industries chairman Michael T. Tokarz said in a company statement. "The business that comprised Walter Industries when we undertook this important strategy will soon exist independently as three publicly traded companies, and in the process, we will have created significant value for our shareholders."