Los Angeles — Homebuilder Lennar Corp. is pitching a plan to resolve the bankruptcy of the 21,000-home Newhall Ranch project, which is on the last major tract of undeveloped land in Los Angeles County.
Lennar, a former co-owner of the project, sold most of its 50 percent stake for $660 million at the peak of the real estate market. Now, it wants to buy a 15 percent slice for $140 million in a deal that would put an affiliate in charge of the development.
The plan, which was up for approval Monday by a bankruptcy court judge, is going to sting the California Public Employees Retirement System.
The pension system and a group of investment partners, which paid $970 million for a majority stake in the venture in 2007, would see its investment wiped out.
LNR Property Corp., Lennar’s original partner in the development deal, also would lose its stake, which was valued at $400 million two years ago.
If approved, the deal would be a spot of good news for Lennar, which has been battered by the housing downturn, and a boost for the stalled Newhall Ranch project on a 15,000-acre expanse of rugged hills on the county’s northern fringe.
The project, which developers plan to build in phases over several decades, was first proposed in the early 1990s, but legal challenges over water rights and other environmental issues delayed the start of construction.
Falling land prices pushed the developer behind the project — officially known as LandSource Communities Development LLC — into Chapter 11 bankruptcy protection last June.
Robert Stevenson, an analyst with Fox-Pitt Kelton Cochran Caronia Waller LLC, said the Newhall Ranch project is important to Lennar’s strategy of maintaining a firm foothold in the key Southern California market, especially when the region’s housing industry recovers.
Emile Haddad, chief investment officer for Miami-based Lennar, would resign to become chief executive of the management company that would develop the Newhall properties.
In addition taking over the Newhall property, Lennar would acquire complete control of a collection of properties containing more than 3,500 home sites and about 5 million square feet of industrial and commercial space in various stages of construction in California, Nevada, Texas, Arizona, Florida and New Jersey, according to court documents.
Lennar spokesman Glenn Bunting and CalPERS spokesman Clark McKinley declined to comment.
Representatives from LNR, a unit of Cerberus Capital Management LP, also would not comment.
Roger Marxen, president of CSEA Retirees Inc., which represents retired state workers who receive CalPERS pensions, was sanguine about the possible loss.
“When something like this comes along that’s not such a good investment, that has to be factored into the long-run cost of doing business,” he said. “They made a lot of other judgments I like. The first time they make a mistake, I’m not going to fault them.”
Debtors in the bankruptcy case, led by Barclays Bank PLC, have endorsed the proposal, under which they would get equity in exchange for the more than $1 billion they are owed, the documents state. Barclays did not respond to a call seeking comment.
An additional $140 million would be raised by selling equity in the reorganized company to take it out of bankruptcy and finance development.
Marlee Laufer, a spokeswoman for Newhall Land and Farming Co., the LandSource subsidiary developing the Southern California project, said the deal would provide the financing needed to break ground as early as 2012.
Delores Conway, director of the Casden Forecast at the University of Southern California Lusk Center for Real Estate, said developers have little incentive to begin building until buyers have absorbed the large existing inventory of unsold homes in the nearby San Fernando Valley.
However, the property’s easy freeway access to employment centers would make it a prime location to build after the housing market rebounds, she said.
“In the short-term, there’s not going to be any building going on,” Conway said. “The whole issue is: How long is the long-term?”