Quick Notes - March 2008

    Below you will find this month's Quick Notes and links for prior month's and the most recent Quick Notes.  If you would like to receive my Quick Notes as I post them via email, please send me an email request - Mike@MorganFlorida.org

March 31, 2008 - Class Action Coming - From what I am hearing and what I was involved in, it looks like two power house law firms are going to file a class action lawsuit against at least three publicly traded builders and a variety of other defendants. I've been told the lawsuit would be filed in South Carolina within the next two weeks. Erin Brockovich has been involved in investigating the homeowners' claims for almost a year, and at least two powerful law firms are ready to pull the trigger on the lawsuit. If you're a client, I will be holding a conference call Tuesday night to discuss this action and my recent North Florida and Coastal Georgia trip. If you are not a client and would like to listen only on the call, email me for details and fee.

March 30, 2008 - I am sitting here enjoying a cup of coffee in an 1883 townhome in beautiful Savannah, Georgia. It's early Sunday morning, and I'm wrapping up another trip where folks told me . . . it's different here. My response is, the only difference is time and color. Take a look at Florida and what you see is what you get. You might not get it for six months or two years, but it is contagious in some or all aspects. Remember Seattle? For two years, I heard how Seattle was immune from the real estate issues plaguing other cities. In 2007 I started visiting Seattle and revealing the cracks in their story . . . condo towers, office towers, retail, etc. Yes, it was delayed and the color was different, but it is the same basic story. Okay, I know, I was going to write about Savannah.

Savannah is a historic town with ghosts of the early days and magnificent buildings the evoke thoughts about how it was 100-200 years ago. So you wouldn't think the housing boom could touch this town. It has. First, take a walk around the historic district and count the For Sale signs on the historic town homes. I was shocked. These are not folks selling in the normal course of events. These are primarily investors that sucked up this stuff, through some money into remodeling and put the properties back on the market with huge mark-ups. I know . . . big deal, a few townhomes are for sale in a laid back historic town. But I haven't finished.
Drive outside Savannah and you see the same residential developments you see in Florida, Texas, Arizona and everywhere else. Big deal. Okay, I'll give you that one too. But here in Savannah we have the Pooler Power Center and 16 West. These are (were) planned retail and residential meccas. Unfortunately, what you see in Florida is coming to a town near you . . . soon. And it has come to haunt Savannah, like the ghosts of pirate captains from the 1700's. The lead developer of the two "meccas" is (was) Premier Properties. But Premier is having some foreclosure issues on a project in Ohio, and a few other problems that have lenders concerned . . . and the Savannah projects are stalled, in limbo, or maybe soon to join the ghosts of Savannah.
Much more information and details for clients interested in coastal Georgia, South Carolina and Florida north of Jacksonville.

March 28, 2008 - UAE Buying Lennar? - Once again, I'm hearing the rumors that a group from the United Arab Emirates is considering buying Lennar. Today's rumors are full of details, like a price of $28 per share and Ivy Zelman serving as a consultant to the group, as well as Morgan Stanley being involved and including in the deal the portfolio they recently bought from Lennar for 40 cents on the dollar (See Note Below). As for the rumor . . . No Comment, but I've heard it from enough people to realize it has some legs . . . if only to shake out some traders. I noticed Lennar's stock was up over 3% today, despite the bad news from KB Homes.
If I had to play the devil's advocate here, I'd say if anyone can pull something like this off, it would be the Quad Sqaud of Miller, Sustana, Jaffe and Grossman. I can tell you from personal experience, these guys are the best at what they do. They may have totally missed the collapse of the market, but they've handled it better than most. The LandSource and Morgan Stanley deals are perfect examples. The numbers and the conference call yesterday were two more examples.

March 27, 2008 - Morgan Stanley's Blunder - For those of you listening to the Lennar conference call, you heard it loud and clear. Stuart Miller boasted about the sale of land to Morgan Stanley. Not only was it at a price that Miller should be very proud of, and Morgan Stanley should be embarrassed about, but Miller went on to boast about the fees Lennar will collect for managing the portfolio. You gotta hand it to Miller, he sold Morgan Stanley an overpriced portfolio AND he's going to make money on the management of the portfolio . . . because Morgan Stanley still has no clue what they bought or what it was really worth AND Lennar has first dibs on any of the land that might be sold from the portfolio AND Lennar participates in profits . . . with no risk. Major kudos to Stuart Miller for a deal only the Tooth Fairy could have dreamed up. As for Morgan Stanley's overpaid team of experts . . . you really blew it.

March 27, 2008 - Condo Lawsuits - The New York Attorney General is moving forward with a lawsuit against The Related Companies for condo sales to New York residents. No need to get into the details, but I can assure you this is going to be a blow to all condo developers that failed to follow the rules. This is not the first time we've seen lawsuits like this.
Here's a lawsuit for the record books. One group of condo buyers is suing a developer because the developer decided NOT to build the project AND to return all deposits. The flippers are flipping out at the audacity of the developer to cancel the project and return their money. They want the tower built, and now want damages. Here's the tricky part. The towers in this area are selling for less than half of original sales prices. On average, these folks paid $700,00o. By the time the tower is built the units could be selling for $150,000 as tens of thousands of units flood the market over the next two years. But this group found a creative liar (lawyer) to pitch their latest angle.

March 25, 2008 - I've advised my clients to BE CAREFUL. Stay away from the traps in residential and commercial properties that appear to be super bargains. Don't fall into a trap like Morgan Stanley did when they thought they got a bargain from Lennar. They paid 40 cents on the dollar, but . . . what dollar? I'm sure they're kicking themselves in the head right now, while Stuart Miller at Lennar is all smiles.
If you are looking for bargains, look at the biotech hubs first. Next, look at senior housing, waterfront property (deep water only), and hotel sites with location, location, location as your mantra.
Just this past week we saw one group walk away from plans to develop a high end assisted living property. They didn't feel the demand was there. I don't think that was the problem. I think they didn't have the financial backing to execute. Assisted Living is hot . . . and the high end is even hotter. I will be speaking on Assisted Living in April, and I can't think of a better market to be in, other than biotech hubs. Also this week near one of the biotech hubs we saw two hotel announcements. This is smart money that is operating under the radar screen.
Be careful. Be careful. Be careful. If you believe guys like Mark Zilbert in Miami talking about a buying frenzy, you need to spend a few hours with me on the road. Remember . . . Timing, Location and Market Segment. And if it looks too good to be true, it is. Mark has a lot of angry buyers that he sold condos to over the last few years. If he doesn't find new suckers for these condos, he's got to deal with all the folks he put into this crap.

March 24, 2008 - The Vaccine and Gene Therapy Institute at Oregon Health and Science University is in the process of joining the biotech center being developed in Port St. Lucie. If all goes well they will start construction on a 130,000 square foot research center employing at least 200 scientists and support staff. OHSU joins Torrey Pines Institute for Molecular Studies in their hub at Tradition. I expect at least four more deals to be announced this year. The Port St. Lucie market is one of the most overbuilt residential markets in the United States, which means prices are now approaching below market value levels. There is an opportunity here to enter the residential market, but more importantly, to enter the support market for commercial and retail in the biotech region.

March 21, 2008 - One of my retail clients is a mortgage broker in multiple states. He owns an investment property here in Florida that he is taking a 30% hit on. This week we had a serious offer from a couple that is well qualified. A rare buyer in this market. They made a serious offer and wanted to go for an FHA mortgage. My client told me he would not be able to get them an FHA mortgage in Florida based on standard FHA policy. He explained that FHA and other lenders have identified thousands of markets as declining markets. In these markets they have raised the qualifying standards to levels that preclude most buyers, or they have simply refused to make loans in these markets. I thought he was nuts, until I saw Alan Zibel's article from the Associated Press today. It not only support what my client told me, but it takes things a couple of steps further. Mortgages are not only tough to get, but in some markets, they are just about impossible. This compounds the problem to levels we have never even contemplated. If you think we are at the bottom, you need to spend a day or two with me. I can't say it enough . . . we are only in the fourth inning and the lenders total disregard for inventory is what is going to send housing into a tailspin. It is just the eye of the storm, and the back half is going to crush us.

March 21, 2008 - Corkery Goes to Zelman . . . Again - Someone asked me what's going on between Ivy Zelman and Mike Corkery with the Wall Street Journal. In his most recent article about smaller builders going bust, once again he goes to Ivy Zelman for quotes and writes the article about builders in her home state of Ohio. No, Ivy doesn't live or work in New York. She's a stay at home Mom that works in Ohio. So the question once again comes up, why can't Corkery seem to tap into some of the more astute and "in the field" analysts and industry executives, instead of running to Ivy for quotes and information that are generally, weeks, if not months behind what's really going on. Corkery's current article is old news. If he spent some time researching what the next big story is, he'd know it's not the builders . . . it's the problems the banking system is having with inventory. And this is the issue that will catapult the housing problem to 4-10 times what the S&L crisis was. Ivy's lame quote in Corkery's article sends a clear signal out . . . she has no clue what's going on in the real world. The only think missing from this article was Corkery or Ivy putting out a positive buzz about Lennar. As for the builders, for those thinking the bottom is set . . . you need to spend a couple of days with me in the field. You'll see just how far we are from the bottom. You'll quickly realize at least one third of the top ten will not be here two years from now. On the other hand, if you listen to Ivy, you're buying some of the builders that have no chance of survival when you look at the fundamentals, JVs, balance sheets, cash burn and in the field inventory.

March 18, 2008 - Biotech Conference - Venture capitalists and industry experts met with scientists and area business leaders to discuss Florida’s research/biotech markets. It is clear from the turn out, this is one of Florida’s hottest markets for future development. The only negative comment, is actually a positive for two of the three regional markets. Tate Garrett with Sunrock Ventures pointed out the geographic distance between the markets of Orlando, Port St. Lucie and Jupiter. I believe this is a huge positive for the Port. St. Lucie and Jupiter regions, as they are just an hour apart and sitting in the middle is Martin County. With both I-95 and the Florida Turnpike running parallel through these markets, and the huge development potential in Western Martin County, this will be the biotech/research corridor for the United States in years to come. Add to the mix, the benefit of location to Palm Beach International Airport, sitting in the middle between Orlando and Miami, and the quality of life in Martin County . . . and you have a recipe for success. I can only attribute Garrett's comment to another executive sitting in his office reporting on the story . . . without the benefit of being here and experiencing reality.

March 15, 2008 - Corkery and Lennar Too Close? - Just four days after I noted how Mike Corkery with the Wall Street Journal failed to get the facts straight regarding the Focus Property Group’s Inspirada project (see below March 11), the WSJ carried Mike's story on Friday about the default notices sent to the JV which Lennar, KB Homes and Toll Brothers. But you still need to ask yourself whether Corkery might be too close to Lennar to report the facts . . . and all the facts. Even in his Friday piece, Corkery notes that executives at KB and TOL were not available for comment, but no mention of Lennar. When people ask me whether Ivy Zelman and Mike Corkery are too close to Lennar to provide all of the "facts", I've always said . . . no comment. However, I will continue to point out when these two miss the boat . . . either intentionally or due to extreme negligence.

March 14, 2008 - St. Joe and Avatar - I've written about both of these companies for the past two years. Today I am simply reminding you to keep an eye on them. St. Joe has the best land in the State of Florida . . . if not in the country. The potential here is biotech, healthcare and senior housing. As I have said before, this could be the Disney of the Baby Boomers. If you are not a client, you might not understand that. I am not talking about amusement parks. Instead, I am talking about the ability to build the communities of the future. That's a taste of St. Joe. If you want more, you need to be a client. As for Avatar. Sharp team, ahead of the ball, no JV ka-ka . . . and that's it for now. Much more for clients.

March 11, 2008 - WSJ's Corkery Short on Facts - It's interesting to follow Mike Corkery's articles in the Wall Street Journal. He usually manages to leave out some of the critical facts or he conveniently only does a portion of the research. So it comes as no surprise, he's done it again in his recent article discussing TOL as a JV partner in the Focus Property Group’s Inspirada project when TOL has a minor stake compared to KBH. Mike failed to mention KBH has a stake more than three times as large. Corkery taking a lead from Ivy Zelman, where the facts don't mean as much as the glitter of the tale they spin. So again we must ask if people like Zelman and Corkery are either too close to the story or whether they have other interests. With Zelman we can look at her recommendations, but with Corkery it becomes a bit more difficult. If the WSJ wants to talk about TOL's JV exposure, they should stack it up against the top dog in the industry. LEN with more than $800M of equity at risk against TOL's exposure of less than $300M. There's more to that story, but as many of you know, I can only say so much when it comes to LEN. The point is this . . . when you see articles from Corkery or notes from Zelman, make sure you ask the right questions. The TOL piece is a perfect example of Corkery's incompetence. Worse yet is how Zelman dances around the facts. Corkery and Zelman need to do the math before putting out stink on companies like TOL.

March 8, 2008 - Biotech and Research - Florida's Treasure Coast is kicking it up a notch when it comes to plans for attracting additional biotech and research institutions. The Economic Development Council of St. Lucie County hopes to land three more institutions by the end of this year. I have been talking about the opportunities in this area for almost two years. If you want to be in the Florida Real Estate market, you need to understand this market. There are conferences planned for March 11, 17 and April 3. If you are interested, contact me for details - Mike@MorganFlorida.org

March 1, 2008 - Zelman Double Talk at the Fed - I was going to just file this away as a silly rumor, but when it was confirmed, I almost fell off my chair. Seems like Ivy was invited to speak to the Atlanta Fed, and she took the opportunity to fish for new clients on the other side of the fence. Here's one of her comments:

"the hits my homebuilders have taken haven't been reflected on your banks' balance sheets and if they were many of them would be insolvent" - Ivy Zelman

From what I hear, you could have heard a pin drop in the room. Here she is telling the Fed and high profile financial execs that the builders are in much worse shape than anyone thinks, while out of the other side of her mouth she has BUY recommendations on builders like Lennar. Again this week I was asked if Ivy is on Lennar's payroll or if she is just simply too close. And now I've heard it from enough people that Ivy releases information in a preference. I guess at some point the SEC needs to investigate, since you can't tell the Fed the builders are insolvent and tell the Street the builders are a Hold or a Buy.

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