Building giant's fall stuns buyers

Builder Levitt and Sons filed for bankruptcy on Nov. 9.

By DAN DeWITT, Times Staff Writer
Published November 18, 2007

Beverly and Hank Johnson stand at the end of the sidewalk in front of their home at Cascades at Southern Hills. Surrounding them are weedy lots, construction fill and unfinished houses.
	[Maurice Rivenbark | Times]

ADVERTISEMENT [Maurice Rivenbark | Times] Gale Wilcox stands on the Cascades lot on which she and her fiance planned to build a home. She said she fears they will recoup just "pennies on the dollar" from their $32,000 down payment.

BROOKSVILLE - In January, when Levitt and Sons offered Hank and Beverly Johnson a chance to bail out of their contract to buy a house in Cascades at Southern Hills, they turned the company down flat.

"We said, 'It's Levitt. What's going to go wrong?'" said Hank Johnson, 67.

Plenty, it turns out.

Levitt, the pioneering builder with a reputation for high-quality construction and credible business practices, filed for bankruptcy protection on Nov. 9 in Fort Lauderdale.

The action left homeowners like the Johnsons asking whether the company - or, possibly, a future buyer of Cascades - will fulfill obligations such as cutting lawns, staffing the gatehouse or building a community center. Another group of customers, those who paid deposits for houses that were never started, wonder if they will ever see any return on their investments.

Gale Wilcox and her fiance, John Boucher, pooled all their finances to make a $32,000 down payment for a house in Cascades, she said.

"Now, we don't have any money or a house," said Wilcox, 59, who lives with a friend in Coventry, Conn. "We're not wealthy people, so this hurt us deeply."

The bankruptcy filing has also left the housing industry with a version of the question the Johnsons asked themselves: How could this happen to Levitt, the 50th-largest homebuilder in the country and, since building Levittowns in suburban New York and Philadelphia after World War II, one of the most famous?

The basic answer, industry analysts say, is that all housing companies are vulnerable to failure in the current market, and several of them may follow Levitt into bankruptcy.

"Just like many other builders in this historic downturn, they are feeling not only pain but near death from speculation in the market since 2001," said Jack McCabe, a housing analyst from Deerfield Beach. "Hundreds of thousands, if not millions, of people are going to be losing money in real estate."

Monthly home sales in the Tampa Bay area, which includes Hernando County, have plummeted from a peak of 5,842 in May 2005, to 1,133 in October, according to Per Berglund, a senior economist with Moody's Economy.com. In slightly more than a year since Cascades opened, Levitt has pulled permits to build only 56 homes, according to city records.

Levitt took some admirable steps to insulate itself from the volatile market, McCabe said. While some builders gave lip service to discouraging speculation, Levitt required buyers to live in their homes for the first year after closing.

The Johnsons said they were required to provide proof of residency and, supporting McCabe's opinion about the company's construction standards, said they are very pleased with their 2,000-square-foot house, which features a fireplace, ceramic tile floors and double-paned windows.

But Levitt opened itself to losses in some of the same ways as other large builders.

It has crews of construction staffers and long-standing agreements with subcontractors, McCabe said. That means it continued to build houses after the market slowed without first lining up buyers.

"I guarantee they have a lot of spec homes," McCabe said.

The company aggressively bought large parcels of land - just as prices were cresting, it turned out.

"They ended up buying a lot of really overvalued land," McCabe said.

The company's timing was also wrong for its market, McCabe said, which was one factor that made it more vulnerable than some of its competitors as market conditions worsened.

Like most of Levitt's projects, Cascades is limited to residents 55 years and older, meaning the company was poised to catch a surge in baby boomer retirees that will not begin until about 2010, McCabe said.

Also, the company's operations had moved from the Northeast in recent years to the Southeast and were concentrated in Florida, said Paul Singerman of Miami, Levitt and Sons' bankruptcy lawyer.

"The majority of its projects are in the worst real estate markets in the country, with Florida leading the devastation," Singerman said.

It may be that the best hope for the company and its customers is that the property will find a buyer who will fulfill Levitt's obligations to build houses and maintain its properties.

"I think there is another strata, another universe of investors, who are looking to buy at a meaningful discount," Singerman said.

Levitt's neighbor, LandMar Group LLC, developer of Southern Hills Plantation, is not one of them. The company said last week it will not buy Cascades or Levitt's undeveloped land.

Singerman said the company also gave buyers options to protect their investments as it began to lose money. In October, Levitt's parent company, Levitt Corp., announced that the home-builder had been unable to repay an $84-million loan from Levitt Corp. and had ceased operations.

In January, the Johnsons were offered a choice between opting out of their contract or accepting enticements that included a price reduction from $324,000 to $267,000 and a three-year membership that allowed them to use the community center at Southern Hills; the community would also be smaller, they were told, with the total number of lots shrinking to 400 from 925.

In August, Singerman said, the company offered prospective buyers the option to place their deposits in escrow accounts that would protect them in case the company went down.

Those steps are unusual, McCabe said, and the credibility Levitt built may help the company survive the bankruptcy proceedings.

"This is not necessarily the last nail in the coffin of Levitt," he said.

But it doesn't help either Wilcox or the Johnsons.

Wilcox, who placed her deposit in June, was told by company representatives that she will likely be just another creditor in the bankruptcy court.

"They said I may only get pennies on a dollar," she said.

As for customers like the Johnsons, the only assurance Singerman could offer is that the company is discussing ways to maintain its properties.

"Our biggest fear is that we will be abandoned out here without services," said Beverly Johnson, whose house is on a short stretch of neat, occupied homes surrounded by weedy lots, piles of construction fill and partially completed houses.

She still can't believe it, she said, considering who they chose as their builder.

"I'm from New York," she said, "and Levittown, Long Island, was like an institution."

Dan DeWitt can be reached at dewitt@sptimes.com or (352) 754-6116.

[Last modified November 17, 2007, 19:04:58]