Brazil's Fifth Biggest Homebuilder Loses $598 Million as 4,000 Buyers Become Ineligible for Mortgages

It wasn't supposed to happen in Brazil's red-hot real estate market but it did to Gafisa, the country's fifth biggest homebuilder by revenue. The company posted a loss of 1.1 billion Brazilian reais ($598 million US) in 2011, reversing a profit of BRL440 million in 2010.

Earlier this year, Gafisa rejected a buyout offer from Chicago real-estate entrepreneur Sam Zell and Brazilian investment fund GP Investimentos.
wasn't supposed to happen in Brazil's red-hot real estate market but it did to Gafisa, the country's fifth biggest homebuilder by revenue. The company posted a loss of 1.1 billion Brazilian reais ($598 million US) in 2011, reversing a profit of BRL440 million in 2010.

Earlier this year, Gafisa rejected a buyout offer from Chicago real-estate entrepreneur Sam Zell and Brazilian investment fund GP Investimentos.

In its prepared statement, the company attributed the loss directly to the cancellation of 4,000 mortgage contracts previously signed by its Tenda unit  with homebuyers who suddenly became ineligible for the loans. Tenda deals in the lower-income market.

The loss  included total adjustments of 889.5 million reais related to cost overruns.

The net loss could have placed the company on a more shaky footing with its lenders.  However, Gafisa, foreseeing the loss, had earlier modified its cash drawdown arrangements with lenders to avoid violating any aspects of its contracts, the company stated.

At Dec. 31, the company had about BRL983 million in cash and cash equivalents compared to BRL1.2 billion in the same period of 2010, Gafisa said.

Credit Suisse Group AG analysts immediately cautioned their clients to be cautious in buying Gafisa stock.

Gafisa forecasts new projects in 2012 ranging from 2.7 billion reais to 3.3 billion reais, deliveries of 22,000 to 26,000 units and operating cash flow of 500 million reais and 700 million reais, according to its statement.

Gafisa has been restructuring its subsidiaries for the past 12 months. Its main focus has been on repositioning Tenda which it acquired at the end of 2008. The company had gambled on increasing its share of the low-income housing market but the gamble failed.  Gafisa's operating costs soared.

The company's operational costs totaled BRL2.68 billion in 2011, up from BRL2.63 billion in 2010.

The company said, "Net revenue for the full year 2011, recognized by the Percentage of Completion (PoC) method, was BRL2.8 billion, 25.1% below the previous year's net revenues as a result of BRL1.2 billion in revenue reversals related to the adjustments, BRL1 billion coming from Tenda and the remaining attributed to the Gafisa segment."

The company stated, "A thorough review of the Tenda portfolio of receivables identified 4,000 customers who are no longer eligible for bank mortgages and whose contracts were terminated, resulting in an impact of BRL91.2 million.

"The dissolution of contracts with potential property owners involves units that are, on average, more than 70% complete; where we collected an average down payment of 6% of the total value of the unit."

Gafisa said the units were returned to inventory and became eligible for resale to qualified mortgage borrowers.

Additionally, provisions were made for future dissolutions equivalent to 8,000 units, resulting in a net impact of BRL80 million in the period. Also, provisions for bad debt amounted to BRL79.3 million.

"The net debt to equity ratio increased to 118.0% from 75.3% in the third quarter of 2011 primarily driven by a 27% reduction in equity with the reported loss and an increase of net debt and investor obligations of 10% equivalent to cash burn of BRL200.2 million and a dividend payment of BRL98.8 million," Gafisa stated.

Tenda will be less aggressive this year, the company said.

"Launches [of properties]  for 2012 are expected to be between BRL2.7 and BRL3.3 billion, reflecting the new more targeted regional focus and the deliberate slowdown of the Tenda business," according to the company statement.

"Gafisa should represent 50%, Tenda 10% and AlphaVille 40% of launches. For the first quarter of 2012, the Gafisa Group already launched BRL400 million," the company said.

The company expects to generate between BRL500 million and BRL700 million in operating cash flow for the full year of 2012.  One Brazil real equals 0.548546 U.S. dollars.   

Fashion Entrepreneur Tonny Sorensen Put Beverly Hills Home on the Market

Former Von Dutch chief executive and clothier Tonny Sorensen -- who gained recognition for popularizing a trucker cap bearing the company name and using celebrities to promote the brand -- has left his own signature on his personal residence in Beverly Hills and put it on the market at $6.9 million.

The gated Midcentury Modern was built in 1961 but completely redone by the Danish entrepreneur. He combined his love of minimalism and high-quality materials in the single-story, 6,000-square-foot home.

A small bridge spans a koi pond at the entrance to the open-plan house. Cambodian water sculptures from the 16th and 17th centuries stand in the pond.

"I had some Buddhist monks come to the house and bless the water," he said, "because I believe in good energy."

Tonny Sorensen's home backyard view of city

The master suite features a fireplace and dual bathrooms for a total of four bedrooms and five bathrooms. In the master bathroom, a large he Trousdale area includes a swimming pool, a sauna, four fire pits, an outdoor kitchen and a built-in barbecue. In addition to the three-car garage, the motor court has room to park an additional 20 vehicles. There are city and ocean views.

In 2010, Sorensen launched the clothing brand CCR, for California Christiania Republic, creating a casual jumpsuit worn by Katy Perry and other notables.

Sorensen, 48, is selling because he bought a 700-acre property in the Three Rivers area that backs up to Sequoia National Park. He is planning a 7,000- to 8,000-square-foot resort home there as well as yurts, trailers, treehouses and pre-fab houses for use by artists. Two miles of river run through the site.

"I want to spend more time up there," said the outdoorsman, whose hobbies include hiking, mountain biking, rock climbing, river rafting and off-roading. When back in L.A. on business, he said, he plans to stay at hotels.

(Orlando, FL) -- The economic recovery now seems to have arrived behind the gates of America's master-planned communities.

(Orlando, FL) -- The economic recovery now seems to have arrived behind the gates of America's master-planned communities. At least that's how it appears considering year-to-date 2012 home sales at top master-planned communities (MPCs) are the strongest in three years, up sharply over 2011, according to the latest report from Robert Charles & Lesser Co.

Each year since 1994, Robert Charles Lesser & Co. has conducted a national survey identifying the top-selling MPCs, followed by in-depth interviews among the top 20 to reveal the trends behind the numbers. Although RCLCO research shows that sales in 2011 were not universally stronger than in 2010, most MPCs report that year-to-date sales for 2012 are up substantially.

A majority of the communities are optimistic that this is a trend, not a blip, the latest RCLCO report says. Most of the top-selling MPCs report that in 2011 and early 2012 they are seeing a deeper buyer pool with better credit. Buyers that have been sitting on the sidelines for the past few years are feeling more secure about buying, and they're back in the market now that the future economic outlook seems a little clearer. Meanwhile, MPCs are also finding that they're competing with a lower volume of short sales and foreclosures in their projects compared with last year.

In 2010, sales were starting to improve, the study shows, but there was no confidence that a good month or two of sales indicated a trend. In 2011, the pattern of consistently improving sales became more pronounced, and 2012 has been even stronger.

In 2011, there was an even stronger flight to quality than in 2010, pushing MPC market share higher as both builders and consumers believed MPCs were safer places to invest in lots and homes. Now those buyers are showing up in greater numbers.

It's important to look at both the circumstances behind increased sales and the proactive strategies participants have employed to bolster their sales. Certainly the improving economy and job growth are major factors, according to RCLCO, with communities near job centers noting the correlation between their sales and employment growth in those areas.

However, through a series of interviews RCLCO identified key themes that have led to the success of the top-selling MPCs that are worth considering for MPCs that are still struggling to recover, as well as for future planned communities. Admittedly, some of the critical success factors (such as being a mature community) cannot be replicated by new MPCs, but many indicate what it takes to succeed in the current environment.

Tomorrow, Robert Charles Lesser & Company will share some of the key success strategies that have been used by some of the top-selling master-planned communities.

U.S. Construction Annual Spend Rate at $809 Billion in February

According to the U.S. Census Bureau of the Department of Commerce, construction spending in the U.S. during February 2012 was estimated at a seasonally adjusted annual rate of $808.9 billion, 1.1 percent (±1.3%) below the revised January estimate of $818.1 billion. The February figure is 5.8 percent (±1.8%) above the February 2011 estimate of $764.2 billion.

During the first 2 months of this year, construction spending amounted to $111.3 billion, 7.4 percent (±1.6%) above the $103.7 billion for the same period in 2011.

Private Construction

Spending on private construction was at a seasonally adjusted annual rate of $527.3 billion, 0.8 percent (±1.1%) below the revised January estimate of $531.7 billion. Residential construction was at a seasonally adjusted annual rate of $246.5 billion in February, nearly the same as (±1.3%) the revised January estimate of $246.4 billion. Nonresidential construction was at a seasonally adjusted annual rate of $280.8 billion in February, 1.6 percent (±1.1%) below the revised January estimate of $285.3 billion.

Public Construction

In February, the estimated seasonally adjusted annual rate of public construction spending was $281.6 billion, 1.7 percent (±1.8%) below the revised January estimate of $286.4 billion. Educational construction was at a seasonally adjusted annual rate of $69.4 billion, 2.5 percent (±3.5%) below the revised January estimate of $71.2 billion. Highway construction was at a seasonally adjusted annual rate of $79.4 billion, 2.6 percent (±5.1%) below the revised January estimate of $81.5