Builders May Lose a Vegas Bet

A group of big builders could be on the verge of getting clipped in Las Vegas. No, they haven't been bellying up to the craps tables or the roulette wheels, or even tugging on one-arm bandits. Instead, they're involved there in a couple of big joint ventures that are wandering into default with their lenders.

The joint ventures involve two development projects, Inspirada and Kyle Canyon Gateway in Vegas, where, until recently, the housing market was as hot as the ambient temperature. In addition to the public companies involved in one or both projects -- Toll Brothers (NYSE: TOL  ) , KB Home (NYSE: KBH  ) , Lennar (NYSE: LEN  ) , Beazer (NYSE: BZH  ) , and Meritage (NYSE: MTH  ) among them -- the ventures involve several smaller builders, which in some cases aren't meeting their obligations. The result has been default notices on about $765 million in project-related debt.

According to The Wall Street Journal, Inspirada is a 2,000-acre project that was intended to include about 13,500 homes once it was built out. But thus far, only about 162 homes have been sold in the development, according to an executive at Focus Property Group, which has a 15.5% stake in Inspirada and a 23% stake in Kyle Canyon Gateway.

When the homebuilding industry was booming and house prices were heading northward, joint ventures represented a means for builders to become involved in large developments, but with shared costs. It's unlikely that in those halcyon days, any of the big builders imagined that their smaller brethren would spit the bit on their portions of the deals.

But now, all the participants are in talks with the projects lenders, led by JPMorgan Chase (NYSE: JPM  ) and Wachovia (NYSE: WB  ) . Toll is the second-largest partner in the projects, with 10.5% of Inspirada and 15% of Kyle. Lennar has 13% of Kyle.

There are, of course, other homebuilding joint ventures across that country that haven't yet approached default. But since some (primarily smaller) builders are beginning to suffer liquidity pains, the surfacing of difficulties could be just a matter of time.

All this leads me to reinforce a message I've preached to my Foolish friends repeatedly in recent months: Don't attempt to be a financial hero by loading up on homebuilders' depressed shares. Chances are you've yet to hear all the bad news on U.S. housing.

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