News Analysis: Wall Street, market forces sank project

San Juan Oaks Golf Club is shown.

In a July county board meeting, Supervisor Anthony Botelho launched into one of his periodic tirades about overbearing state regulations, from the Fish and Wildlife agency, causing harm to the local economy. In this case, that harm was more akin locally to an economic shipwreck, with Atlanta-based Pulte Group pulling out of its highly desirable Del Webb community at San Juan Oaks Golf Club.

Botelho understandably seethed with frustration. After all, this rural commuter county finally had a catalyst for serious, steady, positive growth coming with few if any negative impacts. Del Webb’s ready-made plans for 1,017 active-adult homes—the project sailed through all necessary county approvals without a lick of controversy—easily could have generated a billion dollars in local activity over the next decade when including the construction, property transactions and all the spending those residents, making up a relatively affluent community, were set to do here in the coming years. And the project was planned in Botelho’s district, no less.

After a couple of weeks to reflect, though, the supervisor also acknowledged to me there “might have been a number of reasons why Pulte decided to pull out” of the San Benito County project.

Considering the magnitude of this $7.5 billion real estate company trading on the New York Stock Exchange—and particularly the massive upheaval and cost cutting at Pulte in recent weeks—it appears the decision to leave little-old San Benito County had much more to do with Wall Street boardroom drama and broader market forces than anything within bicycling distance of Johnny’s Bar & Grill or even the state capitol.

To sum up the Pulte soap opera: Founder Bill Pulte, the largest shareholder, had been waging a public battle with the company’s chief executive over such demands as cost cutting and adding more home-building experience to the board, according to a Wall Street Journal story from July. With the help of a new activist investor, Pulte successfully added three directors to the company’s board and set in place a succession plan to replace the embattled the chief executive, according to the Journal.

To go with the changes, the company announced plans to repurchase $1 billion of its own shares, a controversial Wall Street tactic used by public companies to engineer the share price, and cut costs by curtailing land acquisitions in what Pulte called a “less aggressive land purchase strategy” through a letter to shareholders from July 21.

This is where the San Juan Oaks project met its fate.

Since Pulte hadn’t outright purchased the San Juan Oaks property, those land-purchase charges would have shown up on the company’s balance sheet as new acquisition costs, precisely what the founder planned to slash. Pulte, in fact, is doing just the opposite by reducing its land pipeline and bolstering cash flow through such actions as selling an arm of the company, Southern Heat & Air, to a private equity firm, according to an announcement in late July as reported by Dow Jones.

So it wasn’t the typical story about overbearing regulations, as told by Botelho. Not that Fish and Game didn’t play a role, which got Botelho upset. Fish and Game did want Pulte Group to put down what amounts to a $12 million deposit, to ensure the developer would set aside land for the endangered tiger salamander. The only way that Pulte would have to pay the amount, though, is if it decided to first move ahead on the project and then decide, for whatever reason, it wouldn’t set aside that land for the salamanders.

It’s highly unlikely that Pulte would have backed out of its commitment, spurring a $12 million cost if it did. It’s even more unlikely that the Fish and Game “regulation”—call it what you want—had something to do with this multibillion-dollar company’s sudden departure.

Kollin Kosmicki is editor of the Hollister Free Lance.

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