NYT: With Builder in Bankruptcy, Buyers Are Left Out

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Jan 3, 2008, 3:13:49 AM1/3/08
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The New York Times
January 3, 2008

With Builder in Bankruptcy, Buyers Are Left Out
By DAVID STREITFELD

MURRELLS INLET, S.C. -- Ettore and Larisa Costanzo are showing off
their new house, which they love madly.

"Notice how we upgraded so there's tile on all the floors," said Mr.
Costanzo, a retiree from Brooklyn. He pointed to the Kashmir granite
in the kitchen. "It's nice, no?"

Now if only they could get the keys and go inside, instead of peering
in the windows like a couple of Peeping Toms.

The house, on which the couple made a down payment of $88,820, is
empty. Their belongings are in storage. They live, unhappily, in a
hotel.

"It's very upsetting, not to be allowed in our own house," said Ms.
Costanzo, a Russian immigrant. "Please take our money and let us move
in."

Their builder is Levitt & Sons, a unit of the Levitt Corporation,
which ran out of cash in October and declared bankruptcy in November.
All work on this planned 460-home development for retirees, grandly
named Seasons at Prince Creek West, has ceased. The Levitt employees
were laid off, the subcontractors put down their tools, and the
Costanzos found themselves in limbo.

The collapse of Levitt, the first big home builder to fail in the
current slump, illustrates how the turmoil in real estate is spreading
far beyond subprime borrowers who cannot pay their mortgages. Levitt
had a fabled brand, decades of experience and enthusiastic customers
with good credit, but none of that was enough to save it.

Paul S. Singerman, Levitt's bankruptcy lawyer, said that as the real
estate market in Florida went into "an absolutely unprecedented and
catastrophic downturn," the builder's customers across the Southeast
became victims. "There is a bad story, an unfortunate story, about
every customer that placed a deposit," Mr. Singerman said.

Seasons is less than a quarter finished. About 90 buyers have paid a
total of $3.48 million in deposits for houses in varying stages of
completion, ranging from all but done, like the Costanzos', to
unadorned dirt.

Another 90 houses are occupied, but many of these residents are, if
anything, even more unhappy than the depositors. Levitt sold them on a
community where everything would be taken care of. Those assurances
mean little now.

"I can't believe we're dealing with Levitt & Sons," said Nancy Harth,
59, who moved in last March. "It feels like a start-up company."

The initial popularity of Levitt's 18 retirement communities -- at
least 4 of them are now in as much disarray as Seasons -- is testament
above all to the durability of a name.

Sixty-one years ago, Levitt began mass-producing homes on a patch of
Long Island potato fields. It quickly built tens of thousands of
houses in Long Island, New Jersey and Pennsylvania, creating the
modern suburb in the process.

In recent years, the builder has been concentrating on projects for
the children of the Levittown generation, the 78 million aging baby
boomers. Its sales strategy leaned heavily on both the company's long
operating history and its long-ago achievements.

The pitch worked brilliantly.

Christine Roberts was born in Queens in 1966. Six months later, her
parents moved to Levittown, and Ms. Roberts lived there for 38 years.
"Buying at Seasons meant I was still going to be part of a Levitt
community," she said. "We thought that was so cool."

She and her husband, Richard , like the Costanzos, are now full of
uncertainty. They sold their Long Island home a year ago in
preparation for their move to Seasons, and spent $10,000 on new
furniture. With their Seasons house unfinished, they have been living
in a trailer they own in the Poconos. Their furniture is in storage in
South Carolina.

"We didn't think anything bad was going to happen," said Ms. Roberts,
a former worker with the United States Postal Service. "We really and
truly had the utmost faith."

Many of the Seasons buyers came from the New York area. South Carolina
offered a milder climate, lower taxes, less congestion and more golf.
The development is about five miles south of Myrtle Beach, S.C.

"We raised our children. We've done the grandchildren thing," said
Karin Beaupre, who taught elementary school in Lynn, Mass., for 30
years. "It was time for us. So we took all we had and put it into
this."

Nancy Darr, 61, has macular degeneration, an eye condition that
prevents her from driving and makes her unable to distinguish between
a flower and a weed. She wanted a house, but couldn't do the upkeep.

Seasons promised to take care of her concerns. The gated community
would have 24-hour security. An activities director would arrange
entertainment. Owners would not have to mow their lawns. Even their
bushes were to be fed by a central irrigation system.

Best of all was the promise of a clubhouse.

The 29,000-square-foot recreation center would have tennis and bocce
courts, a fitness center, and indoor and outdoor pools. There was to
be a ballroom with a stage, a room for card games and another for
billiards. Levitt promoted it as "a luxury cruise ship on land."

"If you wanted to socialize, you could walk over and just mingle," Ms.
Darr said.

Everyone had plans for the clubhouse. Ms. Darr wanted to swim and work
out. Andy and Pat Hudak were looking forward to dancing the jitterbug,
as they used to.

"We didn't buy a house; we bought a lifestyle," said Mr. Hudak, 68,
who ran a messenger service in New Jersey. They signed a contract in
March 2006, paying $58,508 for a deposit and upgrades.

Selling a lifestyle was something Levitt perfected long ago.

Thanks to the builder, Time magazine noted approvingly in a 1950 cover
story, buying a house was suddenly easier than buying a car. The
original cost was $6,990, about $70,000 in today's dollars; government-
backed mortgages and low down payments smoothed the way. A second
Levittown rose in Pennsylvania and a third in New Jersey (now called
Willingboro).

William J. Levitt, son of the company founder and chief engine of its
success, took the company public in 1960. It was acquired by
International Telephone & Telegraph in 1968, and then sold in a court-
ordered divestiture three years later. The company went through a
succession of owners, relocating to Florida in 1979 and declining into
insignificance.

In 1999, BankAtlantic Bancorp purchased Levitt. Under the leadership
of BankAtlantic's chief executive, Alan B. Levan, the builder began
acquiring large chunks of land, first in Florida and then in
neighboring states. The Levitt Corporation became a public company in
2004.

The product changed in a half-century, of course. The houses at
Seasons are not the tiny boxes of the original Levittown but expansive
dwellings with whirlpool tubs and marble vanity tops. With upgrades,
prices reached $450,000.

But they were still sold as Levitt houses. Home movies of early
Levittown residents dancing on their lawns played in the sales center
and on the Web site. A pamphlet giving a detailed history of Levitt's
glory years was passed out to prospective buyers.

Nancy Darr, who had once watched her condominium developer go
bankrupt, asked her Levitt salesman whether the company could fail.

"This is Levitt & Sons, America's oldest home builder. We built
Levittown," Ms. Darr remembers him replying. "It's a solid company.
It's listed on the stock exchange. This could never happen."

Gary Drejza, a former Seasons salesman, confirmed that such assertions
were routine. "We felt they were the truth," Mr. Drejza said. "We
believed."

He must have, because he bought a house himself. "Want to see it?" he
asked, pointing from the window of his Mercedes-Benz at Lot 49, still
a pile of dirt.

Mr. Drejza now has a somewhat different view. "A name was purchased,
that's all. There's really no remnant of the old Levitt. None of the
family," he said.

That might be no guarantee of satisfaction either. William J. Levitt,
trying to make a comeback in Florida in the late 1970s and early
1980s, was forced to refund thousands of deposits when he failed to
build the homes.

Booms are great, until the hangover. Mr. Drejza's conclusion is that
Levitt got "caught up in the madness," buying too much land for too
many new developments for too much money.

Analysts echo that view. "They tried a national expansion at the very
worst time," said Eric Landry, an analyst at Morningstar, the
investment research firm.

In the bankruptcy, the Levitt Corporation is trying to sever itself
from its Levitt & Sons division. Only the latter is insolvent. Mr.
Levan, the chief executive of the Levitt Corporation and BankAtlantic,
declined through a spokesman to be interviewed. BankAtlantic is based
in Fort Lauderdale, Fla.

Seasons residents express confidence that another developer will
finish the neighborhood, including the clubhouse. But privately, many
acknowledge a lot of misery. "By the time the clubhouse is up," said
Jim Blake, 70. "I don't even know if I'll be alive."

Damon Savino, who drove a truck for a lumber yard, feels particularly
bad. He praised Seasons to his pals. Five of them bought houses; three
are unfinished. "I'm losing friends here," he said.

At a court hearing in Fort Lauderdale just before Christmas, Wachovia
Bank, which is Levitt's largest creditor, agreed to provide $10
million to finish at least 80 homes in Georgia, Florida and South
Carolina.

The Costanzos, the buyers with the all-tile floors and the granite
countertop, are optimistic. "We're going to get our house," said Mr.
Costanzo, 64, a former shoe salesman for Salvatore Ferragamo.

Few of the other depositors seem as relieved. Sixteen of them held a
conference call after the hearing. Fifteen said they did not want
their house at the contracted price unless the clubhouse is built.

Mr. Singerman, Levitt's bankruptcy lawyer, said he did not think that
was likely anytime soon. Wachovia declined to comment.

Dave Whalen, a retired analyst with the New York City Transit
Authority, does not have even the illusion of a choice about building
or walking away. He put down $46,635 for a house that was never
started by Levitt. That means Wachovia is unlikely to bother with it.

"We end with nothing," said Mr. Whalen, 62. "I might as well have
taken my deposit, put it in $1 bills, and let them blow off the front
porch."


http://www.nytimes.com/2008/01/03/business/03abandon.html

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