Questions Swirl on the Fate
Of Levitt's Home-Building Unit

Levitt Corp. could be on the verge of unloading its home-building unit, Levitt & Sons LLC, say some shareholders. Many investors believe the real-estate company would be on solid footing without the troubled home builder, but a number of shareholders said they don't trust Levitt's chief executive, Alan Levan, who they believe ran the subsidiary into the ground.

As Levitt releases its third-quarter earnings Friday, analysts and investors will be interested in updates on the fate of the home-building unit, not news of another quarterly loss. The subsidiary is a famous name in the industry -- it is the company behind Levittown, N.Y., a community of inexpensive, mass-produced homes built after World War II. Levitt & Sons has evolved mainly into a developer of retirement communities for baby boomers in Florida, Georgia, Tennessee and South Carolina.

In recent months, the unit has suspended home construction and laid off a large portion of its staff and defaulted on a number of loans. The home builder's troubles have been a drag on the parent company's stock, which has plunged 84% this year. Though Levitt & Sons still is negotiating with lenders to restructure its debt, many observers believe it will file for bankruptcy protection.

At first blush, this might seem like a good opportunity for investors. Not only would Levitt be getting rid of a troubled unit amid a crisis for home builders, but it would be on the hook for little of the subsidiary's debt. Without Levitt & Sons weighing it down, the Fort Lauderdale, Fla., parent company would be free to focus on its other ventures, such as its land-development unit, Core Communities LLC, and Bluegreen Corp., a developer of vacation resorts in which it has a 31% stake.

"The parent company should retain plenty of liquidity in the event of a Levitt & Sons bankruptcy," said Eric Landry, an analyst at Morningstar Inc., referring to roughly $400 million of $654 million in debt the parent company could eliminate or restructure through a bankruptcy. In addition, a few months ago it raised $153 million through a rights offering, letting shareholders buy shares at $2 each, then a modest discount.

But many shareholders remain wary of Mr. Levan, the Levitt CEO. Concerns about his judgment go back a few years, when, dressed as Indiana Jones, Mr. Levan announced a plan to build 10,000 homes by 2010. (The announcement came amid signs the housing market was overheated, leaving many employees to quip at the time that he was leading them into a "Temple of Doom," a reference to an Indiana Jones movie.) Other management missteps include replacing longtime home-building executives with people with little experience, people familiar with the situation said.

Mr. Levan couldn't be reached to comment.

There are concerns Mr. Levan wears too many hats. In addition to his CEO role in Levitt, he also is the CEO of BankAtlantic Bancorp Inc., a big Florida bank, and holding company BFC Financial Corp. BFC has a controlling stake in both Levitt and BankAtlantic, and Mr. Levan and his business partner, John Abdo, have a large percentage of the voting shares of all three companies.

Mr. Levan "hasn't done a very good job running any of them," said Phil Frohlich, whose Prescott Group Capital Management in Tulsa, Okla., owns 6.2% of Levitt Corp. All the companies have had quarterly losses in recent years, he said.

Mr. Levan conceded in a 2006 interview that his multiple CEO roles make him an easy target for criticism, and no one criticized his roles or business plans when the companies performed better.

Levitt shareholders have questioned the recent rights offering. The strategy isn't considered shareholder friendly because investors either buy more shares or see their holdings diluted. Although the vast majority of non-BFC voters rejected the attempt to increase the shares -- a move that would facilitate the rights offering -- it went through because of Mr. Levan's supervoting power.

Some investors are betting that without the home-building unit, Levitt's remaining interests are strong enough to endure poor management strategies going forward. Core Communities has attractive commercial projects, and Bluegreen continues to be profitable.

"Whether we trust Levan or not is irrelevant," said Jim Cahn, a Chicago analyst for Wanger Long Term Opportunity Fund, which holds stock in Levitt. "Even if Levitt & Sons completely dissolves, we believe the remaining assets of Levitt Corp. are substantially undervalued by the market."

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