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The joint venture that owns Newhall Land & Farming Co. and is on the eve of building a 21,000-home project in the Santa Clarita Valley has defaulted on its $1.1 billion loan.

The default by LandSource Communities Development LLC leaves an uncertain future for the massive Newhall Ranch project, one of Southern California's largest residential developments.

LandSource, a venture of three homebuilders, defaulted April 22 on a first-lien loan it received as part of a $1.55 billion refinancing in March 2007 led by Barclays Capital Inc. and syndicated with 100 lenders.

A bankruptcy filing could place some 48,000 acres of property owned by LandSource including the 12,000-acre proposed Newhall Ranch in the hands of creditors. LandSource would not disclose the amount of the default, but a spokeswoman said the venture was seeking to renegotiate the loan.

"(LandSource) did go into default but they are still talking to the lenders about restructuring the debt or modifying the terms," said Tamara Taylor, a spokeswoman for LandSource. "The hope is that they will be able to renegotiate the terms of the loan to everybody's satisfaction."

LandSource is a joint venture of Miami-based Lennar Corp. and LNR Property Corp., a unit of New York City-based private equity firm Cerberus Capital Management. M/W Housing Partners III LP is the third partner. M/W is an entity co-managed by San Francisco-based MacFarlane Partners LLC, which invests money for the massive California Public Employees Retirement System. Calpers invested nearly $1 billion in the venture in early 2007.

The disclosure that LandSource has missed a loan payment amid the credit crunch and housing slowdown is not entirely surprising. In March, rumors surfaced that the venture was on the ropes and was about to be purchased by a group of investors from the United Arab Emirates.

Lennar, which purchased Newhall Land in 2004 with LNR as a 50-50 joint venture, denied the reports but saw its stock temporarily swoon.

A spokeswoman for Valencia-based Newhall Land said the company was proceeding with day-to-day business despite the financial turmoil. Construction has not begun.

"Right now we're just focusing on the work we're doing on Newhall Ranch," said spokeswoman Marlee Lauffer, who declined to discuss LandSource. "We have a fully approved specific plan. It's been through the validation process."

Barclays, LNR, Calpers and MacFarlane Partners declined to comment on the record. Lennar did not respond to requests for comment.

Housing crash

Newhall Ranch, which has been strongly opposed by the city of Los Angeles and environmentalists, would be built on former farmland along the Santa Clara River, from the Golden State (5) Freeway to the Ventura County line. Newhall Land went before teh Los Angeles County Board of Supervisors in February seeking approval to proceed with the development's first phase, the 1,444-unit Landmark Village.

When Barclays Capital arranged the refinancing in 2007, the managing director of Barclays' U.S. real estate division, Haejin Baek, said the deal "is further proof of the high-quality of LandSource's business, assets and position as a leader in managing land development."

LandSource would not discuss how it got into financial trouble, but in a Securities and Exchange Commission filing Lennar noted that as the homebuilding market deteriorated as early as 2006 and in 2007, it saw a number of partners in its various joint ventures become "financially unable or unwilling to fulfill their obligations."

In addition, the Wall Street Journal reported May 1 that the weak housing market made it impossible for LandSource to carry out a plan to sell ready-to-go home lots to builders in order to finance itself.

Newhall Land is still developing a number of subdivisions east of the Golden State Freeway in Valencia.

Newhall Land, which has about 150 employees, has been a fixture in Santa Clarita for more than a century, having started the construction of Valencia in the early 1960s. Founded in 1883, it remained locally owned until Lennar and LNR, a spinoff, bought it in 2004 for $1 billion.

In early 2007, the two companies sought to lower their risk by bringing M/W Housing into the venture. The nearly $1 billion that Calpers plunked down helped M/W Housing get a 68 percent stake.

Inevitable development?

Still, there is the strong possibility that if the venture can survive it might carry the project through completion.

The Santa Clarita Valley has grown rapidly over the past two decades and North Los Angeles County is about the only place in the county where large new subdivisions can be constructed.

Just last week, Tejon Ranch Co. cut a deal to develop a 26,000-home community north of Santa Clarita along the section of the Golden State Freeway known as the Grapevine.

The massive project, even larger than Newhall Ranch, had been opposed by environmental groups including Natural Resources Defense Council, which decried it as "sprawl."

The agreement will allow the project to move forward over several decades in exchange for Tejon Ranch offering 49,000 acres of land for a state park and setting aside almost 200,000 more acres, among other concessions.

Even if LandSource is not able to hold on to the Newhall land, many believe the property will be developed.

Tim Ben Boydston, a former Santa Clarita city councilman and longtime resident, said the land is too valuable to remain undeveloped.

"If there is entitled land, which Newhall Ranch is, although there may be a period of reorganization, or there may be a period where the development is slowed down, there's no way that it won't eventually be built," he said. "I have no doubt that any entitled land that's located in Southern California will be built because of the demand of the increasing population of the greater L.A. area."

However, Lynne Plambeck, president of the Santa Clarita Organization for Planning and the Environment, said she hopes conservation groups or even the state will try to buy the land if it is put up for bid in the event that LandSource is forced to relinquish the property.

Her organization, a local environmental group that filed lawsuits in opposition to Newhall Ranch, does not have sufficient capital to pull that off. But she said she intends to make sure that every environmental group with adequate finances is aware of the possibility.

"The reduction in public expense by not having those houses there would just be incredible," said Plambeck, pointing to wildfire protection, flood control and sanitation plant construction as costs that would be saved.

"If we are going to continue to accommodate our growing population we can't continue to build our auto-oriented sprawl," she said.

Staff reporter Daniel Miller contributed to this report.

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