WaterSound in South Walton, Florida
The St. Joe Company — a.k.a. in real estate discussions as Florida’s 800 Pound Gorilla due to the amount of land the firm owns — has stirred up another round of gloomy commentary with its recent announcement of a change in its business plan. JOE, as it has dubbed itself, says it is getting out of some of its non-core businesses, such as hospitality, golf and recreation. Instead, it will focus on its business strength – land ownership with a low-cast basis.According to JOE leadership, the reason for this dramatic change is to save money, about $10 million in 2008 alone. Saving money, particularly as a publicly traded company, is a very good thing. Media such as The Wall Street Journal bruited the JOE announcement as yet another sign that the housing sector is seriously troubled. We see it more as a sign that the JOE leadership is astutely refocusing on its strengths in response to a shift in the marketplace.It seems wise to leave golf and hotel management to companies that excel in that space, rather than reinvent those particular wheels in-house at JOE. For example, I own a car, which is an asset. I use the car to my advantage and can sell the car, if I choose. Yet, I would never consider maintaining the car myself or re-painting it. I wisely turn those necessary – and profitable – tasks over to someone who specializes in those fields. If I am lucky, I find someone who has a real passion and the correct tools to execute these tasks. JOE is moving to this same type of policy. Owning land is very different from operating a golf course.Even better news for our area is that JOE has emphasized that Walton and Bay counties are “growth assets,” meaning they continue to recognize that these areas have strong potential for an increase in value. Looking ahead to the new West Bay airport, JOE is banking long-term leases on nearby commercial property. Soon national and international visitors will become as enamored of our beaches as drive-time tourists have for years. Development, real estate and business in general will increase by a hefty multiplier in Walton and Bay. JOE will be leaner, focused and ready.It is, of course, sad and unfortunate that people will lose their jobs as part of this strategic change at JOE. Our thoughts and prayers go out to them and their families. JOE has committed to shifting as many employees as possible to their new partners, which is also the right thing to do.No one ever said being a leader meant avoiding tough decisions. JOE has proven once again that their leadership is not simply based on the number of acres of land it owns.
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October 24th, 2007 at 4:03 pm
Hm…it sounds to me like JOE is, in fact, cutting costs because their profits are low, not just out of a profit-maximising desire to specialise. Granted, David Ricardo did prove that specialisation increases overall efficiency, but it seems to me that JOE is probably cutting back because their costs are beginning to close their profit margin to one which is a touch too small for comfort. To my very, very, ancient and well-preserved eyes, this looks to me like a reaction to the corrections in the housing market, not a desire to increase specialisation. The whole “JOE will be leaner and more focused” business is just JOE trying to seem like everything is alright, when in fact the cutback is necessary to a loss of revenue from the spiraling market.
October 25th, 2007 at 11:25 am
Thanks for the comment.
JOE is an anchor in NW Florida with their successes bolstering the surrounding real estate even prior to the “frenzied period” (Winter 2006 Emerald Coast edition of Condo Owner). During the frenzied period, they (JOE) benefited (as did others) from oversubscribed lotteries and unprecedented price increases—resulting in record profits.
The market transition has hurt the bottom line—they own the land (premium land with an extremely low cost basis)—but if the land or, what is on top of it, does not have the sales velocity that meets expectations—stock holders stop smiling. Trimming non-revenue operations and forming strategic alliances to free up cash is expected in this market. They do not need a huge machine to run their operations and I agree that they are trimming costs to adapt to the market transition–unfortunately, many people will be affected.