Print

Email story

Comment

Letter to the editor

WCI Communities, awash in luxury, wrangles with slump

Cancellations and defaults mount for the upscale builder.

By James Thorner, Times Staff Writer
Published January 20, 2008

From the 1970s to the 1990s, Al Hoffman, a former fighter pilot and Harvard MBA, built thousands of homes in the Tampa Bay area in places like Carrollwood Village, Sun City Center in southeast Hillsborough County and Mandalay Shores on Clearwater Beach.

It was all very nice. But not necessarily the Ritz.

"Housing is pretty basic and it's very unglamorous," Hoffman told the Times in 1995.

That $75-million private company Hoffman controlled in the early 1990s has mushroomed into $2-billion publicly traded WCI Communities.

And basic isn't a word you'd use to describe WCI's projects these days. In places such as Tampa's Westshore Yacht Club, the average sales price of one of its new Florida homes set amid marinas and country clubs tops $750,000.

Therein lies the problem. After the south Florida luxury home market went into a tailspin in 2006, WCI has struggled to avoid its own death spiral. Cancellations and defaults have swamped new home orders. In its last quarterly report on Sept. 30, WCI reported just eight new home orders against 89 defaults.

Investor and corporate raider Carl Icahn grabbed the chairmanship of the Bonita Springs company in August but that hasn't stopped WCI's stock from free-falling the past year from the low $20s to nearly $2. It closed Friday at $2.86.

Company officials rebuffed several attempts at an interview last week when WCI managed to renegotiate hundreds of millions of dollars in loans to fend off bankruptcy.

Hoffman, who resigned from WCI two years ago to become President Bush's ambassador to Portugal, can only watch from afar at what's happened to his baby.

"My heart goes out to all its employees who are dependant on a healthy real estate market for their personal economic security, just like hundreds of thousands of other Florida residents who have been affected by this totally unprecedented real estate downturn," he said in an e-mail to the Times.

WCI wasn't alone among builders and developers in misjudging the depth and persistence of the Florida housing slump. But even as early as 2005, housing analysts were scolding the company as a problem child.

Not only had the company become dependent on fickle investors to sell luxury condos and single family homes, it had financed much of the boom with a higher percentage of borrowed money than its competitors.

A long string of money-making years since 1998 - profits peaked at $186-million in 2005 - ended with a whimper by late 2006.

When Icahn said he'd bought 15 percent of WCI in early 2007, not long after Bill Gates disclosed his smaller share of WCI, one housing analyst dubbed the company a "billionaires' folly."

By last summer, the investors who fueled WCI home purchases had defected. Sales were in negative territory - more cancellations than contracts.

Emblematic of the troubles is Westshore Yacht Club, built in 2005-06 atop the site of a former Westinghouse submarine engine plant near Gandy and Westshore boulevards in Tampa.

With its Mediterranean, Coral Gables stylings and dozens of boat slips, the neighborhood sells homes for upwards of $3-million. Two 15-story condo towers appear mostly vacant judging from the scarcity of balcony furniture among its 200-plus units.

"That one's hemorrhaging," Hillsborough real estate broker Craig Beggins said of Westshore. "That's where they got their heads cut off."

Even Sun City Center, viewed as a staid retirement community, caught the housing bug and suffers withdrawal symptoms.

Part of Hoffman's original empire since the late 1980s, when his company was called Florida Design Communities, Sun City has about 600 homes for sale. That's about 10 times the listings of several years ago.

"You don't think of that as an investor-driven community," Beggins said. "It is a market where people die and have to sell. But there was no plague that made them all die."

WCI has been on a price chopping binge in Sun City. New homes offered for $550,000 in 2006 sold for $400,000 in 2007.

Although Hoffman wouldn't say so himself - he declined to get specific about WCI's troubles - the company seems to have jettisoned the conservative formula that made it successful early on.

"My philosophy is to be absolutely out of sync with the market," Hoffman told the Times 12 years ago. "When real estate is booming is not the time to buy land. Instead, I always try to buy when nobody else wants it."

That philosophy paid off handsomely when Hoffman scooped up thousands of acres from the real estate division of Westinghouse in 1995.

But by 2002, hungry for more investment cash, WCI went public after hitting the stock market with a $140-million initial public offering. In 2006, the company bragged about launching more than 10 projects. Its portfolio includes 50 communities in Florida and beyond.

But as 2008 begins, WCI's task is to avoid being the largest public home builder to fail during this slump.

Housing analyst Ivy Zelman summed up WCI's predicament last year: "There is too much inventory, not enough sales and price deflation. It's the perfect storm."

James Thorner can be reached at thorner@sptimes.com or 813 226-3313. Read his real estate blog, (Un)Real Estate, at blogs.tampabay.com/realestate/

WCI's roller-coaster ride

1985: Florida Design Communities founded by Al Hoffman, a well known builder-developer in Tampa.

1995: Hoffman and his colleagues buy Westinghouse's real estate division for $560-million.

1998: WCI, the name of the Westinghouse property, merges with Florida Design.

March 2002: WCI, with sales of more than $1-billion, becomes a public company with an IPO. Shares start at $19.

2004: WCI named Builder of the Year by the National Association of Home Builders.

October 2005: Appointed ambassador to Portugal, Hoffman resigns from WCI. Earlier in year, the stock peaks at about $36.

2006: WCI's profit is $9-million, a huge drop from $186-million in 2005

January 2007: Carl Icahn says he's bought nearly 15 percent of WCI.

March 2007: After the company puts itself up for sale, Icahn bids $22 per share, or $956-million. WCI refuses the offer.

Aug. 2007: WCI stock hits a new low, and Icahn reorganizes the board with his favorites. He's later named chairman.

Nov.2007: WCI says it's trimming its work force to 2,100, down from 2006 peak of 3,900.

Jan. 2008: On the cusp of bankruptcy, WCI persuades creditors to restructure its loans through 2009.

[Last modified January 18, 2008, 22:46:54]