Fairholme's Piece of Florida

Michael Breen: We had spoken before about, you have St. Joe's, that's one real estate play. That's a really battered down area. I'm wondering if you are sniffing around in that space and finding anything?

Bruce Berkowitz: St. Joe's, most people don't ask me about St. Joe's, so I feel compelled to answer. But St. Joe's land, a little under 600,000 acres, 70% of the land is within 15 miles of the Gulf.

Michael: Northwest Florida?

Bruce: It is the panhandle. Some people call it lower Alabama, LA. It is about 2% of the state of Florida; it is the last open space. The catalyst to St. Joe is a new international airport which is opening next May. I think the first international airport since 9/11. It is almost impossible to open airports today. And that's been the problem with this area. It has beautiful land; it is as diverse as the rainforest. With an international airport right dab in the middle of St. Joe's land, you no longer have to take two planes, a train and a car to get to some of the most beautiful spots in the United States.

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And plus there's a possibly for light industry. You have the largest Air Force base, Eglin Air Force Base; you have Tyndall Air Force Base. You have a deep-sea port at Port St. Joe, which is actually closer to the Panama Canal and to South America than Miami's port is.

But this is a story that everyone knows, that's been going on for 30 years and it's 20 years late and no one believes it. So we have become the largest owner of one of the largest land companies in Florida. And we like the new CEO and we like the idea that we bought the acreage pretty much at swamp prices.

And the company has no debt, has some cash, is patient, and understands the possibilities. Really this company should be more a liquidating trust. I think a private real estate family would love to get their hands on this company to keep them busy for 50, 75 years.

Michael: And the market seems focused on their not building houses in the next quarter, or the quarter after?

Bruce: Assets are not making any money. But what people fail to realize is that the state of Florida, with the help of the federal government, is putting in about $3 dollars per share of development. Besides the airport, then you have to build the roads; you have to build the highways, the byways. You have to build all the infrastructure that goes with all of it. That's my ultimate definition of free cash, when somebody comes and just puts it into your land. That's a heck of a free cash flow definition.

Michael: OK, great. Anything else you're seeing in the market?

Bruce: No, I think that it's amazing how quickly the markets are changing. I don't know whether we're seeing the bottom. I don't know if that's the cheapest we will ever see, but...

Michael: Cheap enough.

Bruce: It is cheap enough, and my big worry is if we get to a more buoyant time it's going to be awfully hard to get excited, given the sort of free cash flow yields that we are seeing today up and down the credit structure.

Michael: OK, great. Thank you very much for your time.

Bruce: It's good seeing you.

Michael: Bye.

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