The Real Story: More Woe at St. Joe

At that time, 314 buyers submitted offers for 23 lots, according to a company press release. The fervor was still there in February of last year when 281 buyers submitted offers for 37 home sites.

However, there are currently only three houses (including one that's a model home) completed. "Nobody is building," according to the fund manager, who said he did not see a single new home under construction when he visited Rivercamps last month.

St. Joe's Ray, however, has said previously that construction has started on several houses and that "everything is on schedule."

St. Joe has its supporters.

"St. Joe has a balance sheet that can carry for the long run, so I am willing to for wait for the returns that I think will eventually come," says RealMoney.com contributor David Merkel, a senior investment analyst at Hovde Capital, who is long the stock.

Elsewhere, Third Avenue Management owned over 10 million shares, or 14%, of the company as of March 31. A Third Avenue representative refused to discuss St. Joe, instead pointing me to its recent shareholder letters. Its most recent shareholder letter does not mention St. Joe, other than to state the percentage of various portfolios that the stock comprises. In the fourth-quarter 2005 shareholder letter, St. Joe is grouped with companies that Third Avenue believes has "super good management with proven track records." Third Avenue also believes St. Joe has insulated itself from competition.

It's important to note that a critical member of that management team, former president and COO Kevin Twomey, recently retired. His exit is seen as a significant loss by Wall Street.

I don't disagree with the competition statement: St. Joe owns northwest Florida. However, while you can be the only Porsche dealer in town, if people aren't in the market for Porsches, it doesn't matter that there's no competition.

That's the situation St. Joe is in. Many properties are very costly and targeted toward the second-home buyer -- most of whom are not buying in this environment (in fact, some are bailing out). Although many homebuilders are suffering from fewer orders, St. Joe is exceptionally vulnerable because of the high-end market and region that it serves.

Lastly, in what I believe was a play to increase its asset value, St. Joe reclassified 199,000 acres of what was previously classified as timberland to land that can now be used for resort and recreational purposes.

CEO Peter Rummell pointed to new product lines like "new ruralism" (an example being Rivercamps), as ways the land can be put to better use.

I have argued since my first story on St. Joe that there will be a very select few attracted to this type of living, especially when real estate prices have stopped climbing. The lack of construction at Rivercamps proves that point.

St. Joe shares have been crushed, off 48% since their high in July and 27% since that original bearish article in March. With more ugly surprises likely in store over the next few quarters and sentiment turning increasingly negative, I suspect the stock still has a ways to go on the downside. I am maintaining my $31 price target, roughly 30% below Wednesday's close of $44.52.