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Coffee Talk

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  • | 6:00 p.m. August 10, 2007
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Coffee Talk

+ WCI's embarrassing

cash trickle

February seems such a long time ago.

Back in the spring, executives and directors of WCI Communities were busy rebuffing billionaire Carl Icahn's takeover and confidently forecasting $1 billion of free cash flow by collecting on contracts for condos it sold during the boom.

Fast-forward to Aug. 6: Free cash flow now totals just $130 million for the first half of the year. (WCI defines free cash flow as net cash flow from operations plus or minus net cash flow from investments in property and equipment.)

Now, the Bonita Springs-based homebuilder is telling investors it might only generate half the free cash flow it forecast in February.

Of the $400 million to $600 million in free cash flow WCI expects to generate in the remaining months of 2007, it's counting on $350 million from a single project in Bal Harbour in condo-busted Miami-Dade County.

WCI executives aren't the only ones sweating it out this summer. Lenders are getting nervous too because much of that free cash flow was going to be used to pay down a mountain of debt. As of March 31, they're owed $1.9 billion.

To stay in its lenders' good graces, WCI must maintain certain financial ratios and it could be considered in default. In a statement, WCI President and CEO Jerry Starkey, says the company has "begun discussions with its lenders to amend its credit agreements to provide broader latitude to operate during this protracted downturn." Starkey doesn't say what could happen if lenders don't agree to loosen up.

Icahn's $22-per-share offer earlier this spring is looking real good now as the homebuilder's shares trade in the $6 range. The Bonita Springs-based builder recently told investors it has received no offers to buy the company.

+ Here come the

'80s, S&L-like?

The softening of the housing market is well known. Get ready for what may come next: Banks foreclosing on land in Florida meant for residential.

Coffee Talk has heard the brewing trend compared to the savings and loan situation in the 1980s. Easy money. Land bought up. Absorption expected. Flippers flipping daily. Then, slack demand. Flippers leaving. Loans going bad. Banks waiting. Loans still going bad. Bankers it can work out.

This is land meant for single-family homes, townhomes and condominiums. With fewer buyers, many of these projects have not started. There are more than a dozen sites along the Pinellas County beaches, nine on Clearwater Beach alone, meant for condos that haven't been built. The loan take-backs may begin next year and continue into 2009.

"I do believe this certainly is a potential problem and we will see banks with problems on land loans," said Greg Bryant, CEO of Bay Cities Bank in Tampa. "The developers who purchased land wanted it sell it to one or several builders. The obvious issue is home absorption is low, so there's less cash flow to pay the interest."

However, a backup pool of money worked into loans, called interest reserves, can help borrowers make payments.

"It's actually quite painful, but a good adjustment for the real estate economy to push some of these numbers down," says Bill Eshenbaugh, president of Eshenbaugh Land Co., a Tampa land brokerage. "Fill dirt companies, truck drivers, developers are all finding out there's not an endless book of business."

One alternative: Rezoning the land to commercial or industrial. This is starting to happen.

The problem was that developers thought absorption would continue at the same pace. Actually, it's probably a healthy market unless you're a developer left standing in the game of musical chairs or a bank with a lot of bad land loans.

"Happily, Bay Cities has very little exposure to this type of credit," Bryant says.

+ Looking for overseas

business opportunities

Entrepreneurs and small business owners seeking a way to make business and networking contacts in seven international cities can contact Carla Rayman, the new president of the Sarasota Sister Cities Association. Rayman, an area Realtor who specializes in foreign properties, is compiling a list of business owners who are interested in any of the following cities: Hamilton, Canada; Vladimir, Russia; Treviso, Italy; Perpignan, France; Tel Mond, Israel; Siming District, Xiamen, China; and Dunfermline, Scotland.

Contact Rayman at [email protected] or (941) 927-3725 for more information.

+ Mr. DeBartolo goes

to Lakeland

Could this be a sign of a new surge of development in Polk County?

DeBartolo Development has picked Lakeland as the site of Arbor Glen, an apartment complex with 12 buildings, clubhouse, office and maintenance garage. DeBartolo Development is an arm of DeBartolo Holdings, a Tampa-based company run by Eddie DeBartolo Jr., former owner of the San Francisco 49ers and now a Tampa businessman involved in real estate and banking.

Polk has been a longtime distribution hub, positioned between Tampa and Orlando off Interstate 4. Coffee Talk thinks it may be premature to pronounce this the beginning of a building boom, but we'll will keep our ears to the ground. With the housing market gone soft, there is a need for apartments in some areas of the Gulf Coast. Lakeland is a logical spot for people shuttling across central Florida.

Lakeland, or some I-4 location, could also be a site for a new open-air, real grass stadium for the owners of the Tampa Bay Devil Rays, who publicly said they were eventually going to break their lease prematurely at Tropicana Field in St. Petersburg. It would be more central to drawing fans from Tampa Bay and central Florida. You read it here first.

+ Lawyers descend on Health Management Associates

As if on cue following a stock-price decline, legal buzzards are now circling around the Naples-based hospital chain Health Management Associates.

The class-action securities lawyers are piling on the suits against HMA, alleging that the company knew of deteriorating financial conditions when it issued a special one-time dividend of $10 a share in March funded by borrowing $3.25 billion.

HMA told investors July 31 it took a $39 million charge to reflect a decline in payments from uninsured patients that it is obligated to treat. It lowered its earnings guidance in 2007 to reflect the burden of the uninsured. HMA's stock fell nearly 25% that day to $8.06. It recently traded around $7.

The lawsuits are typical of those filed any time a stock falls. They're usually frivolous and settled long before any trial, though they tend to generate flashy headlines. Not surprisingly, HMA says the allegations are without merit and will vigorously defend against them.

It's not D.C.,

but it's not bad

Westshore's newest office project, the 580,000-square-foot multi-level West View Corporate Center, will feature a reflecting pool fronted by a long rectangular green open space called The Common.

If you're thinking Washington, D.C., think a little smaller. There's no soaring stone monument or stately presidential sculptures, but Philadelphia developer Rubenstein Partners, which is building West View with a spring 2009 opening, has a big vision.

The Common might host concerts, corporate town hall meetings, movies, outdoor dining and outdoor wireless workstations, the company says.

Coffee Talk likes the idea, especially in Westshore, which hasn't always been pedestrian friendly. Have you ever tried to cross Westshore Boulevard on foot? Is it possible to cross Spruce Street without a car? How's that heartbeat?

Ol' Coffee Talk also gives a nod to Tampa-based Alfonso Architects for using some imagination and taking advantage of the bayfront view when designing West View, which is near the Howard Franklin Bridge.

Downtown St. Petersburg has done a better job than downtown Tampa in using its waterfront. Tampa, which has waterfront Curtis Hixon Park, is hustling with its emerging riverwalk and museum redesign. The new condo residents will like it. Maybe Westshore, Florida's biggest commercial district, is starting to get it.


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