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WSJ: Lennar In Talks With LandSource Creditors

By Michael Corkery Of THE WALL STREET JOURNAL Home builder Lennar Corp. (LEN), which largely cashed out of one of the nation's biggest land ventures near the top of the market, is close to a deal to pick up some of the pieces at a significant discount. Lennar sold much of its interest in the venture, LandSource Communities Development LLC, in February 2007 to the giant pension fund California Public Employees Retirement System and collected about $707 million in cash. LandSource sought bankruptcy protection last June, essentially wiping out much of the Calpers investment. (This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.) Now Lennar is negotiating with creditors of LandSource to create a new company that would acquire much of the land out of bankruptcy, including the venture's crown jewel, the 12,000-acre Newhall Ranch north of Los Angeles. Lennar and several hundred creditors holding $1 billion of the venture's debt would contribute "substantial" equity to the new company, according to a summary of the proposed agreement that was sent to a group of creditors Thursday and reviewed by The Wall Street Journal. It's not clear how the deal would value the land. But the price would be significantly below the land's value when a Calpers-funded venture made its investment in 2007, according to people familiar with the matter. Calpers representatives have said the pension fund believed LandSource would profit over the long term and didn't anticipate the severity of the housing downturn. Many of LandSource's creditors include investment funds that purchased the venture's debt, which originally had a face value of $1.5 billion. Under the proposed deal, Lennar and the debt holders would take interests in the venture and share in the profit as the land gets developed. Lennar has reached a tentative agreement for the deal with a committee representing a lead group of debt holders. The deal is subject to approval by a bankruptcy court judge and could face opposition from other creditors. The deal would be a bold move for Miami-based Lennar, the nation's second-largest home builder by volume, which has been struggling to sell houses amid the recession. Despite its problems, the company has a stockpile of about $1 billion in cash and has been working to raise additional money to buy distressed land. The deal could also prove a coup for Lennar's chief investment officer, Emile Haddad, who would step down from the company to manage the LandSource assets. Haddad was one of the chief architects of the LandSource deal in 2007. A top lieutenant of Lennar Chief Executive Stuart Miller, Haddad also is credited with helping mastermind some of Lennar's other big land acquisitions, including the former El Toro military airport, one of the largest pieces of property slated for housing in Orange County, Calif. The deal with LandSource debt holders comes amid scrutiny by investors and analysts of Lennar's joint ventures. These often opaque, complex, off-balance-sheet entities allowed Lennar to control thousands of acres while reducing its risk. But critics are worried they could come back to haunt the builder, in part through lawsuits by disgruntled partners. The company has reduced its joint-venture exposure from 270 ventures at the peak of the housing boom to 116 in the quarter ended Nov. 30.

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