WCI Communities Files for Chapter 11

[Richard Choi]

http://www.reuters.com/article/bondsNews/idUSWNAB461020080804

The fallout from housing meltdown and credit crunch continues as WCI Communities, the builder of premium golf communities such as Hammock Bay, The Colony, and Tiburon filed for chapter 11.

The high-end communities are certainly not immuned from all the turmoil and we can probably expect several others to follow the bankruptsy trail.

So, does this mean end of big golf community development in US for next 4 to 5 years?

[David_Tepper]

Richard -

I think things could get very ugly for the 2nd & 3rd home market over the next few years. We will have the curse of "living in interesting times."

DT

[Jim Nugent]

We will have the curse of "living in interesting times."

Bobby Kennedy apparently was the first to say that is a Chinese curse.  But from what I have read, he is wrong, and there is no curse that says that. 

That said, I definitely think we are in for some interesting times. 

[Craig Van Egmond]

Predates Kennedy... 

The Yale Book of Quotations gives a citation for the phrase “May you live in interesting times” as follows “American Society of International Law Proceedings vol. 33 (1939).” The Yale Book of Quotations also states that “No authentic Chinese saying to this effect has ever been found.”

[Bruce Leland]

...it and about 130 of its subsidiaries have filed...  Wow, I have limited knowledge of WCI but didn't they all but own the FL golf real estate market?   This may be the first lemming over the cliff!

[Mike Hendren]

In a speech I attended in August 2007 the Comptroller of the Currency described the then-imminent residential real estate market as a "100 year flood."  California, Florida and Vegas are ground zero.

Mike

[Jason McNamara]

The weight of the average Golf / Golf Digest issue just dropped 20%.

[cary lichtenstein]

The carnage at the high end has begun

They have 5 or 6 properties in Jupiter/Palm Beach Gardens/West Palm Beach area including Old Palm and dozens thru out Florida, especially the Naples area

[Doug Wright]

The carnage at the high end has begun

They have 5 or 6 properties in Jupiter/Palm Beach Gardens/West Palm Beach area including Old Palm and dozens thru out Florida, especially the Naples area

Does anyone know if this also has affected the Phoenix/Scottsdale area?

[Steve_ Shaffer]

WCI is/was not a player in AZ.

Shea Homes has opened a new Lehman course in the East Valley- Encanterra. I played  there in March when real estate sales had just started. I don't know how they're doing now but there were some very good incentives then.

Shea also developed Engh's Blackstone in the West Valley. I also visited there in March and the real estate there has never taken off.Some areas looked like a ghost town. Incentives galore there too. Membership was less than 100.



 

[Robert Mercer Deruntz]

For those who have not been able to follow the true story.  This is another Carl Ichan manuver.  The ethics of this are probably as gray as most of his deals.  Anyone had their TWA pension legally stolen?  Ichan is a genius at finding companies with beyond- incredible -performance pension plans, running company into ground, raiding the "surpluss" pension money, dismantling the company, and finally moving on much wealthier.  WCI is his latest trophy.  He bought most of their secured debt and just over 5% of the company and now controls WCI.  The Chapter 11 filing is a way to wipe out the stockholders in order to emerge as the sole owner of WCI.

[Tiger_Bernhardt]

Obviously there will be more to follow. The last major down move took a decade to play out. This one has several different variables which are on both sides of a the time table out.

[John_Conley]

For those who have not been able to follow the true story.  This is another Carl Ichan manuver.  The ethics of this are probably as gray as most of his deals.  Anyone had their TWA pension legally stolen?  Ichan is a genius at finding companies with beyond- incredible -performance pension plans, running company into ground, raiding the "surpluss" pension money, dismantling the company, and finally moving on much wealthier.  WCI is his latest trophy.  He bought most of their secured debt and just over 5% of the company and now controls WCI.  The Chapter 11 filing is a way to wipe out the stockholders in order to emerge as the sole owner of WCI.

Robert, thanks.  Your comments help me understand this a little better.  I was driving through a recently-booming area in Florida today and said to myself, "if WCI, one of the most prolific homebuilders, couldn't have made enough money during an unprecedented housing market to avoid bankruptcy I'm not sure how anyone could."

[Steve Lapper]

For those who have not been able to follow the true story.  This is another Carl Ichan manuver.  The ethics of this are probably as gray as most of his deals.  Anyone had their TWA pension legally stolen?  Ichan is a genius at finding companies with beyond- incredible -performance pension plans, running company into ground, raiding the "surpluss" pension money, dismantling the company, and finally moving on much wealthier.  WCI is his latest trophy.  He bought most of their secured debt and just over 5% of the company and now controls WCI.  The Chapter 11 filing is a way to wipe out the stockholders in order to emerge as the sole owner of WCI.

Robert:

   You are somewhat mistaken. Carl Ichan has indeed lost plenty of $$ in his WCI investment, probably lots more than any other single shareholder. He did avoid losing more by having managment refuse his $1B+ takeover offer 14mos ago. His ethics are no more questionable than our entire capitalist system. His investment(s) were risk capital and as such, the lifeblood of our society's capital markets and capitalistic philosophy, no?

He did not, as you suggest, raid the WCI pension plan(though he has restructed some in the past), nor did he own the majority or possess absolute control of the senior debt. Ultimately the debt of WCI (it expanded enormously near the peak of it's cyclical success) forced this Chapter 11 filing. While shedding no tears for Ichan, he did lose over $120MM in this name and your assertion otherwise is simply not the case here.

My partners and myself were long ago approached about joining Icahn in the WCI deal. Wisely, we chose not to, but I cannot condone an unwarranted attack on him in this situation.

WCI was a bloated and arrogant builder that over-extended themselves in a highly vulnerable sector in a highly vulnerable region. Ultimately, this bankruptcy, and the others that will inevitably follow will help cleanse the golf-course business environment and make it vastly more efficient, all a net-positive for an overbuilt industry!

[cary lichtenstein]

Steve:

Great post

Cary

[Steve_ Shaffer]

I understand that the Chapter 11 Reorginazition Plan will be presented in March or April. WCI will no longer be a builder. Instead they will sell lots to builders in the communities they decide to keep. For example, the high end Old Palm CC in Palm Beach Gardens,FL will be a keeper from what I understand and that builders are being selected now to build on the many vacant lots there. There are about 300 total lots. Also, there are many resales of existing houses on the market now. This is a very big ticket place.

[Bill_McBride]

WCI bought Lost Key on Perdido Key in Pensacola and was doing a pretty good job rather independently up here when the corporate mess caught up with them.  We were getting ready to build some 4-plexes on the golf course when everything ground to a halt.

The Lost Key ("Perdido Key") golf course is an Arnold Palmer design that originally had such narrow corridors that the locals called it "Lost Ball" or even "Lost Sleeve" or "Lost Dozen."  WCI spent a couple of million widening the corridors but it's still nothing to get ecstatic about.

[cary lichtenstein]

I understand that the Chapter 11 Reorginazition Plan will be presented in March or April. WCI will no longer be a builder. Instead they will sell lots to builders in the communities they decide to keep. For example, the high end Old Palm CC in Palm Beach Gardens,FL will be a keeper from what I understand and that builders are being selected now to build on the many vacant lots there. There are about 300 total lots. Also, there are many resales of existing houses on the market now. This is a very big ticket place.

From all the gossip here in Palm Beach, rumor has it, I say rumor clearly, that Old Palm assessed their members $50,000 each for last years shortfall, and that the guy who owns Turnberry in Florida is considering buying or putting a group together to buy Old Palm.

I understand the clubhouse is lovely, although I have not seen it and the course is in excellent condition.

[Adam Jeselnick]

The situation with WCI is not unique.  They are not the first, nor will they be the last, homebuilder/developer to file for bankruptcy.

See also: SunCal (CA), Fulton (AZ), Mercedes (FL)...

What happens next is anyone's guess, but I agree with Steve L. that as far as the golf industry is concerned, it is probably for the best...

[J_McKenzie]

I may be mistaken, but WCI is somewhat different from the typical developer in that a lot of their product consisted of high rise towers.  This complicates things even more as these towers have to be fully built in order to have something to sell, so there was considerably more expense on the front end.  It would be similar to a single family house developer having to build all their units at once, not just starting with a few spec. homes?   

[Steve_ Shaffer]

WCI is trying real hard to dispose of exisiting inventory-free golf for 3 years in certain communities:

www.wcicommunities.com/current-offers/free-golf-for-three-years

[cary lichtenstein]

I understand that the Chapter 11 Reorginazition Plan will be presented in March or April. WCI will no longer be a builder. Instead they will sell lots to builders in the communities they decide to keep. For example, the high end Old Palm CC in Palm Beach Gardens,FL will be a keeper from what I understand and that builders are being selected now to build on the many vacant lots there. There are about 300 total lots. Also, there are many resales of existing houses on the market now. This is a very big ticket place.

From all the gossip here in Palm Beach, rumor has it, I say rumor clearly, that Old Palm assessed their members $50,000 each for last years shortfall, and that the guy who owns Turnberry in Florida is considering buying or putting a group together to buy Old Palm.

I understand the clubhouse is lovely, although I have not seen it and the course is in excellent condition.

I heard from a reliable source that the $50,000 rumor is NOT TRUE.

[Steve_ Shaffer]

Apparently, WCI will continue to be a builder in some areas other than southeast FL. They will not be a builder at Old Palm.

The clubhouse at Old Palm is indeed well done. It is a not a mounument to excess as Ginn's 90000sf Tesoro clubhouse is.

http://ts.rtvpix.com/tour/BU/tour.view.php?utl=BU-4596-NS1SSS-01

I think the free golf concept at Venetian Golf&River Club is very intriguing. It's a quality course.

[Joel Zuckerman]

I may be mistaken, but WCI is somewhat different from the typical developer in that a lot of their product consisted of high rise towers.  

I was passing through Hammock Dunes, some 50 miles south of Jacksonville and just a few miles from I-95, a few weeks back.  It was too cold to play, so the principals took me to lunch, and then showed me some incredible condo properties as built by WCI.  Walking through the front door of a 6th floor, 5,000 square foot, 4 BR luxury condo, ALL you could see was ocean outh the facing windows, wall-to-wall.  Very, very impressive view.  They told me that WCI would entertain any reasonable offer of about 1.5 million on a residence that, a year ago, would have easily been worth twice as much.  For those who still have enough money and are wanting a showpiece home, a place like this is, in relative terms, a real bargain.

[David_Tepper]

Joel -

Any homes that might have been $400m now selling for $200m?

DT