Home Builders to Settle Las Vegas Land Dispute
In Securities and Exchange Commission filings Thursday, KB Home reported it would pay from $216 million to $240 million, including fees, to a group of lenders led by J.P. Morgan Chase & Co. Beazer said it would pay from $15.7 million to $17 million, and Toll said it planned to enter into a "cash settlement" of an undisclosed amount.  The settlement plan indicates a conclusion is nearing for a long legal fight in federal courts in Las Vegas over an ambitious land deal that was brought down by the housing crisis. A person familiar with details of the plan said that the total settlement is worth from $330 million to $340 million and that Toll will pay from $30 million to $40 million.

Home Builders to Settle Las Vegas Land Dispute
By ROBBIE WHELAN

A group of home builders, including KB Home, Beazer Homes USA Inc. and Toll Brothers Inc., has agreed to pay lenders as much as $340 million to settle legal actions related to Inspirada, a failed land deal outside Las Vegas.

In Securities and Exchange Commission filings Thursday, KB Home reported it would pay from $216 million to $240 million, including fees, to a group of lenders led by J.P. Morgan Chase & Co. Beazer said it would pay from $15.7 million to $17 million, and Toll said it planned to enter into a "cash settlement" of an undisclosed amount.
      
      Inspirada, a 2,000-acre master-planned community,
      was planned in 2004, near the height of the real-estate
      market, as an off-balance-sheet joint venture.

The settlement plan indicates a conclusion is nearing for a long legal fight in federal courts in Las Vegas over an ambitious land deal that was brought down by the housing crisis. A person familiar with details of the plan said that the total settlement is worth from $330 million to $340 million and that Toll will pay from $30 million to $40 million.

"We're pleased to have reached a settlement on behalf of the lenders, and look forward to working with all parties to see the terms of the agreement achieved," a J.P. Morgan spokesman said.

Inspirada, a 2,000-acre master-planned community, was planned in 2004, near the height of the real-estate market, as an off-balance-sheet joint venture. That financial structure was popular among builders in the real-estate boom because they believed it would limit risk when buying land for their future use.

The J.P. Morgan-led group, with 39 lenders including Wells Fargo & Co. and Crédit Agricole SA, lent a venture set up by the builder group $585 million to buy and develop the land into a community meant for as many as 14,500 homes.

But the builder group, which also included Meritage Homes Corp., a Nevada-based land-development company and several smaller private builders, defaulted on the loan. The lenders accused some of the builders of refusing to honor agreements to buy portions of Inspirada's land gradually at boom-era prices topping $500,000 an acre. Just over 600 homes in the community have been built there, while land prices have plunged in the Las Vegas area.

The conflict escalated late last year, when the J.P. Morgan group filed a petition in U.S. Bankruptcy Court in Las Vegas to force the builder group, known as South Edge LLC, into involuntary bankruptcy. In February, a judge approved the petition and appointed a trustee to oversee the builder group.
    
    Construction on KB Homes properties at the
    Inspirada in Henderson, Nev., in December

In response, KB Home set aside $212 million in reserve funds to cover its obligations, less than it has now agreed to pay, according to SEC filings. In return for the payment to lenders, KB will take a 65% to 68% stake in the underlying land.

Scottsdale, Ariz.-based Meritage, which owns a 3.5% stake in Inspirada, didn't settle with the lenders, but last week, the company said in a regulatory filing that the lenders had demanded $13.2 million to satisfy their debts. The filing said that Meritage would "vigorously contest" the banks' demands and that the builder had "additional defenses" against the banks because, in 2007, it had tried to honor its guarantees to pay back the banks' loans by buying land from the builder group's joint venture, but had been prevented from doing so by the other builders.

"We actually did everything we could to try and complete that transaction," said Brent Anderson, a spokesman for Meritage. "That's part of the reason we did not try to settle on the same or similar terms that KB agreed to. They gave up too much."

Credit Suisse analyst Dan Oppenheim wrote in a client note Thursday that the KB settlement was higher than expected.

Beazer didn't return phone calls and emails seeking comment. A KB spokesman said the company was "pleased that the preliminary agreement has been reached."

Martin Connor, Toll Brothers' chief financial officer, said the outcome of the deal is a lesson learned about not having too many partners involved in a single real-estate project.

"I think what this says is, think long and hard before you do a deal with 35 lenders, seven builders and a land developer," he said. "It's just unmanageable to try and negotiate with that many parties when things don't go as planned.

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