By Dawn Wotapka Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- Builder Hovnanian Enterprises Inc. (HOV) is circulating a private-placement memorandum looking for investors to pour millions into a land venture, according to multiple sources familiar with the matter. The move would allow Hovnanian, based in Red Bank, N.J., to focus on its home-building expertise as it taps outside capital to remain competitive in the current land grab. As the housing market limps toward recovery, home builders are fighting one another over well-located lots. For most builders, money isn't an issue: Several companies have cash hoards well above $1 billion. But, as of Jan. 31, Hovnanian had just $450 million in cash, some of it restricted, in addition to tax refunds. Several sources said Hovnanian could boost its coffers by selling some of its land lots to the new venture, said to be named LandStock. Chief Financial Officer J. Larry Sorsby said in an email that he wouldn't comment beyond a March securities filing vaguely outlining a potential deal. Some information circulating in the marketplace is inaccurate, he added, but he declined to be specific. It is unclear how much interest Hovnanian has generated. For home builders, land ownership can yield big profits during a boom, but, as the sector learned the hard way, it can also be risky as the market crashes. During the boom, the nation's home builders went on a buying spree, wildly overpaying for land and smaller builders. They've since paid a price: Since 2006, the largest 15 public builders have taken nearly $35 billion of charges to reflect the plunging value of land and houses. Hovnanian's total is $2.2 billion, according to Moody's Investors Service. After selling its less-valuable land for pennies on the dollar, the industry is eschewing outright ownership. Builders are increasingly choosing land options, which lets the builder put down a deposit for the right to buy the land in the future at a price set when the option is inked. In one of the biggest recent cases, Lennar Corp. (LEN) optioned nearly 5,500 Florida lots from Starwood Land Ventures LLC. The price wasn't disclosed. Partnerships are also becoming more common. In November, Hovnanian and GoldenTree InSite Partners announced a joint venture to design and sell homes in Chicago and Florida's Palm Beach County. Hovnanian, which would manage day-to-day operations, said it invested 20% of the equity capital. Last year, Ryland Group Inc. (RYL) joined forces with Oaktree Capital, starting a company to acquire and develop real estate projects. Ryland has the right to option lots sold by the partnership. Hovnanian, the nation's sixth-largest builder by annual sales, disclosed minimal information about this current deal in a March filing with the Securities and Exchange Commission. The builder said it is considering investing about $40 million for a 10% noncontrolling stake in a new company that would acquire and develop land parcels and finished lots in major markets. The land would be available to builders, including Hovnanian, to buy. "We expect to offer a substantial number of land acquisition opportunities," the filing stated, adding the deal has a three-year exclusivity period. Ara Hovnanian, Hovnanian's chief executive, would be the non-executive chairman. -By Dawn Wotapka, Dow Jones Newswires; 212-416-2193; dawn.wotapka@dowjones.com
