The Real Deal Miami

Miami-based fund may have to slash its equity stake in Panhandle land owner

The Fairholme Fund owns about 42% of The St. Joe Company, and fund manager Bruce Berkowitz serves as the company's chairman
May 06, 2018 03:40PM

Bruce R. Berkowitz

A Miami-based fund may be forced to slash its stake in The St. Joe Company, a development company with a large portfolio of vacant land in Florida’s Panhandle region.

The Miami-based Fairholme Fund, managed by Bruce R. Berkowitz, is the largest shareholder of St. Joe, which has 177,000 acres of land in the Panhandle.

Berkowitz is chairman of the board of St. Joe, and two directors of the Fairholme Fund are members of the company’s board of directors.

The fund owned 42.8 percent of St. Joe at the end of March, according to a proxy statement issued by St. Joe, and its investment in the company represented 24 percent of the fund’s assets at the end of January.

But the U.S. Securities and Exchange Commission (SEC) has issued new liquidity-management rules that require funds like Fairholme to limit illiquid investments to 15 percent of net assets.

Securities lawyers say Fairholme must divest 10 million of its 22.7 million shares of St. Joe to comply with the new SEC rules, which the agency will start enforcing on Dec. 1.

The price of St. Joe shares, traded under ticker symbol JOE, closed Friday at $17.55, which was 80 cents above the shares’ lowest price in the last 52 weeks.

Heavy selling of St. Joe shares by the Fairholme Fund, combined with the company’s limited income from real estate development, could put downward pressure on the price of the shares.

St. Joe once owned a million acres of undeveloped land in Florida but has sold the majority of its most valuable land.

The company’s remaining 177,000 acres of land is located in remote forests and swamps in Florida’s Panhandle.

St. Joe has been planning to develop its land in Bay and Walton counties as a resort for retirees. But the plan is now more than 10 years old, and little progress has been made.

The Fairholme Fund, which had nearly $17 billion of assets in 2010, now has $1.6 billion of assets. [Seeking Alpha] – Mike Seemuth