Friday, March 14, 2008

Joint Venture Involving Major Homebuilders in Default

by Bill McBride on 3/14/2008 07:36:00 PM

From the WSJ: Two Projects in Default Dog Big Home Builders

Two massive housing developments in Las Vegas, involving several of the nation's largest home builders, have received default notices on about $765 million in debt ... two joint ventures, involving builders Toll Brothers Inc., KB Home and Lennar Corp. among others, have each missed an interest payment in recent weeks ...
Earlier this week, in a filing with the SEC, Toll warned of potential "significant losses" from joint ventures projects:
We have investments and commitments to certain joint ventures with unrelated parties to develop land. These joint ventures usually borrow money to help finance their activities. In certain circumstances, the joint venture participants, including ourselves, are required to provide guarantees of certain obligations relating to the joint ventures. As a result of the continued downturn in the homebuilding industry, some of these joint ventures or their participants have or may become unable or unwilling to fulfill their respective obligations. In addition, we may not have a controlling interest in these joint ventures and, as a result, we may not be able to require these joint ventures or their participants to honor their obligations or renegotiate them on acceptable terms. If the joint ventures or their participants do not honor their obligations, we may be required to expend additional resources or suffer losses, which could be significant.

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