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Coffee Talk

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  • | 6:00 p.m. May 15, 2008
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Coffee Talk

+ WCI: Banks and Icahn hold the cards

The ink was barely dry on the news that Bonita Springs-based WCI Communities lost $2 per share in the first quarter when some observers said the company might have to file for bankruptcy.

In a note to clients, Raymond James analyst Paul Puryear says given the homebuilder's deteriorating liquidity position, potential asset revaluations and likely losses through 2009, "we believe bankruptcy risk is now a likely potential outcome."

WCI's stock fell 50% in the four trading days that followed the May 7 news of its quarterly losses to close at $1.54 on May 12. WCI bonds are trading at huge discounts, indicating a likelihood of default. For example, WCI's 7.88% bonds maturing in October 2013 recently traded at 39 cents on the dollar for a yield of 33%, according to bond data from the Financial Industry Regulatory Authority.

Still, bankruptcy may not be an option for Carl Icahn, who owns 14.5% of the company's common stock. After all, bankruptcy would wipe out any value of Icahn's six million shares. It was only just last year that Icahn offered to buy the whole company for $22 a share.

And bankruptcy may not be an option for WCI's lenders either. Why would banks want to be saddled now with real estate that is devalued? Their balance sheets don't need any more Florida land.

+ Visitor spending falls

in Hillsborough

Total visitor spending in Hillsborough County fell 1.5% and hotel occupancy declined 5.9% in 2007 compared to 2006, according to the latest Hillsborough visitors study done for Tampa Bay & Co., the county's convention and visitors' association.

Wages generated in the visitor industry also fell 2.4% and employment slipped 1.9%.

Among all visitors, family and friends remained the most popular reason for people visiting in 2007, followed by attractions, such as Busch Gardens, the Museum of Science and Industry and Lowry Park Zoo.

Among business travelers, Busch Gardens, friends and family, air service and special events were among the top reasons for visiting Hillsborough. More than 90% recommend Hillsborough as a desirable destination.

And although spending was down, the average hotel room rate rose 5.4% in 2007 to $102.25 a night.

+ Affordable housing?

Not near my home value

Here's a twist on the housing market slump: A group of north Manatee County homeowners is suing one of the largest homebuilders in the county for setting prices too low.

In documents filed in the12th Judicial Circuit Court in Manatee County, the six homeowners claim that Lakewood Ranch-based homebuilder Pat Neal violated bylaws of the subdivision he's building in Parrish by substituting an affordable housing component for what was supposed to be mid-price range townhomes.

The suit alleges that by building low-price cottage homes in the Forest Creek community - homes that were initially selling for $125,000 when they debuted in February - the builders are "in flagrant violation of the restrictions placed on the development." Neal isn't personally named in the lawsuit, but the defendant is Forest Creek Associates LLC, a development arm controlled by Neal and his son John Neal.

Pat Neal tells Coffee Talk he was shocked over the lawsuit, in addition to completely disagreeing with it on both legal and logical grounds. "I've never seen a lawsuit like this," says Neal, who has been in the homebuilding business for almost 40 years. "There's not a court on the planet that will support this."

Neal says the case has no legal merit because the value of the cottage homes is about the same as the townhomes he initially planned to build. The cottage homes were a legitimate change to the initial plans, he says.

And not only were the homes a legitimate change to the project, says Neal, it was also a successful change: In four months, the company has sold 29 cottage homes, some after raising the prices to around $145,000. The two-level, one-car garage homes start at about 1,200 square feet.

But the success of the homes isn't legally relevant to the suit, argues Crystal Golm, a Bradenton attorney representing the homeowners who brought the suit. The subdivision "changed in so many ways," Golm tells Coffee Talk, "that my clients feel like this isn't the subdivision they purchased."

One of the plaintiffs, Frank Maruca, is ready for an obvious accusation: That he and his co-plaintiffs, which include his daughter and his brother, are snobs for arguing against having affordable housing in their neighborhood.

Maruca, a painting contractor and residential landlord whose personal residence is in northwest Bradenton, not Forest Creek, denies that charge. The lawsuit, he says, is instead about homeowner's rights. Says Maruca, who paid $277,000 for the home in a purchase that closed last July: "[Neal] doesn't have the right to turn this subdivision upside down."

Maruca further wonders if he would be allowed to build a $300,000 home in a neighborhood of $800,000 homes. He thinks the current homeowners would have the same reaction he's having, that a move like that would bring down the overall value of the community. "We are not snobs," says Maruca. "We just want the original concept of Forest Creek."

Indeed, that is what Maruca and the other plaintiffs are asking for in the suit, in the form of a temporary and permanent injunction to prevent Neal Communities from selling or building any more cottage homes in the community.

No court date has been set yet and Neal's attorneys haven't filed an official response to the suit. But Neal is as confident in his side as Maruca is upset.

"The plaintiffs are wrong on the facts and the law," says Neal. "We believe that Mr. Maruca has made a serious mistake."

+ Don't look a cracker horse

in the mouth

With all the serious legislation going on in Tallahassee over the budget, it's good to know our legislative crew sneaks in a few good neighs every now and then.

In a report to real estate developers, bankers and lawyers in Fort Myers recently, Carole Green, the lobbyist and former Lee and Collier state representative, said legislators in the most recent session voted to name the cracker horse as the official equine of Florida. "I don't know what it looks like," she cracked.

For those coastal folks who don't know what the term "cracker" means, the Loggerhead Turtle is now the official turtle of Florida.

+ Mystery bank seeks buyer

for large loan portfolio

First Financial Network, an Oklahoma City-based firm that specializes in running auctions to sell tarnished loan portfolios nationwide is spreading the word on its newest, and biggest, project. It involves a $400 million-plus pot of loans - mostly in Florida and mostly in residential properties - which a so-far unnamed bank is looking to shed.

And Coffee Talk hears it, the 44-loan portfolio includes a good chunk of waterfront and other property on the Gulf Coast, in addition to some properties in North Carolina and Tennessee. Both First Financial officials and Gulf Coast banking industry insiders say $400 million is a super-size portfolio of loans to be put up for auction, even in these rough economic times.

"This offering represents the largest of its type in the last several years and is representative of the changing market conditions resulting from the decline in real estate values in the Southeast," Bliss Morris, First Financial's president and chief executive officer, says in a statement. "This sale provides a rare investment opportunity for both traditional whole loan buyers and domestic and international real estate investors and developers."

So, what bank is looking to dump $400 million in loans? First Financial officials decline to name names, saying only that it's a "leading banking institution." But that doesn't mean bankers aren't speculating about the identity.

One local banker says the institution in question has to be real big, at least $10 billion in assets, making it a regional player, not just a community bank. The bank would have to be big enough to absorb such a big loss. And regional would make sense, since this portfolio is concentrated in the Southeast.

Other bankers, based in Sarasota, tossed around a few possibilities, with the big three being Milwaukee-based M&I, Atlanta-based SunTrust and Birmingham, Ala.-based Regions. An M&I official told Coffee Talk the bank doesn't comment on speculation. The other banks couldn't be reached for comment.

There's little mystery, however, as to who and what companies can bid on the portfolio: It's open to investors or companies, and bids can be placed on the entire portfolio, pools of loans or individual loans. The due diligence process has already begun and bids will be taken through June.

+ Taxes may rise

in Lee County

Taxes on new construction may rise in Lee County.

These taxes, also known as "impact fees", could increase if consultants determine they need to be raised and calculations are modified, says Mary Gibbs, director of Lee County's Community Development Department.

Speaking recently to a group of commercial real estate brokers, Gibbs says school-related and road-related impact fees could increase this year even though most expect them to drop as Lee County's economy slows. "Don't ask me if they're going to go up or down," Gibbs says.

Mark your calendars: Taxes on new construction will likely be a hot topic at meetings of the Lee County Commission in September.

+ Executive seeks to put

his time to other uses

John Cranor, a one-time chief executive of companies such as Wilson Sporting Goods and Kentucky Fried Chicken and a prominent pro-business voice in Sarasota, was known for guiding others through the complications of time management during his 35-year business career.

Now Cranor will be doing some of his own time management: He will be leaving his position of president of the New College Foundation, the fundraising arm of the Sarasota-based honors college, to devote more time to a trio of other business-centric challenges. What's more, Cranor an alumni of the school's first graduating class in 1967, says the foundation is on the cusp of being ready to launch a time-consuming $100 million capital campaign.

"Putting together a project like that," Cranor tells Coffee Talk, "is a five- to eight-year process."

And Cranor has other tasks taking up his time. For starters, he's the chairman-elect of the Greater Sarasota Chamber of Commerce's board of directors, a position that drops the 'elect' in October. He's also non-executive chairman of AFC Enterprises, the parent company of Popeyes Chicken and Biscuits.

Finally, Cranor tells Coffee Talk that he and his brother are shopping around for a food company to buy. The Cranors are looking mostly at companies in the Midwest, such as a tortilla, seasoning or sauce business.The pair recently considered buying a pre-packaged salad company.

Cranor succeeded in two major goals during his five years with the foundation: Growing the school's total endowments and expanding its donor base. The foundation's endowment has grown 31% since 2003, from $32 million to $42 million and it reported record income of $9 million in its 2007 fiscal year.

Cranor, who served on the New College's board of trustees for six years after being appointed by Gov. Jeb Bush in 2001, says he will stay involved in New College causes after he leaves the foundation June 30. "I've been a part of New College for 40 years," he says, "and it has been a part of me for that long."


What the data shows: Taxable sales of business investment include store and office equipment, computer shops, medical supplies, commercial rentals, hotel and restaurant supplies, farm equipment, transportation equipment, manufacturing equipment and paper materials.

What it means: The decline in consumer spending on the Gulf Coast and tighter credit conditions are prompting some companies to cut back on business investment. All areas of the Gulf Coast declined more than the state on a percentage basis except for Punta Gorda, which had the lowest sales in this category. Fort Myers fared the worst as the housing slump has hit Lee County particularly hard.

Forecast: Business investment will rebound in earnest when the economy begins to recover from the housing-led downturn. However, businesses related to tourism, health care technology and export will continue to keep business investment from further significant decline.


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