The St. Joe Co., a major forest landowner in the Florida Panhandle that has made significant moves into residential development in the region, is facing a formal investigation from the Securities and Exchange Commission, the company has revealed. The Miami Herald has the story (“ SEC’s investigation of St. Joe Co. now ‘formal’,” by Ina Paive Cordle). St. Joe says the probe covers a variety of topics, according to the Herald report, “including antifraud provisions of federal securities laws, as they apply to the company, its past and present officers, directors, employees, partners, subsidiaries and affiliates. It also covers the compliance of reporting obligations by those who currently and in the past have directly or indirectly owned more than 5 percent of St. Joe’s stock, including Fairholme Funds, Fairholme Capital Management and St. Joe’s chairman Bruce R. Berkowitz.” (Berkowitz, who runs the Fairholme investment funds, has engineered a shakeup of company management in the past year, and took over as chairman this year.) One of the key issues in the investigation is rumored to be the company’s financial accounting practices with regard to the “impairment” of land — a practice by which companies write down the loss of market value in their land holdings as a capital loss during real estate market downturns. Most large U.S. builders have taken major accounting write-offs on land devaluation in recent years, and many have reaped corresponding Federal tax rebates from “loss carryback” provisions in the tax code, which let money-losing corporations recover money paid in taxes during previous, profitable years. The question of St. Joe’s asset valuations plays a role in some high-stakes Wall Street games around the company, Bloomberg reports (“ St. Joe Shares Fall Most Since February on Disclosure of Formal SEC Probe,” by John Gittelsohn). Hedge fund manager David Einhorn, who runs New York-based hedge fund Greenlight Capital Inc., holds a “short” stake in St. Joe (in which the investor would make money if the company’s stock price fell), writes Bloomberg, and has told the press previously that St. Joe’s land is overvalued. But St. Joe contests that claim. Company boss Berkowitz told Bloomberg that the land, mostly bought in the 1930s and 1940s, is correctly valued on the books, saying: “St. Joe’s board and executives have been very, very conservative and spent a lot of money making sure we were doing it correctly.” New York financial analyst Sheila McGrath concurred, telling Bloomberg that most of the company’s land is valued as forest, not as developable acreage. “I’d be very surprised if they’re not vindicated because their real estate is on the books at well below market value,” McGrath told Bloomberg. But St. Joe’s fortunes, like those of any Florida developer, hinge mainly on the recovery (or not) of the Florida real estate market — and, in St. Joe’s case, of building and real estate in the Panhandle. A significant chunk of St. Joe’s developable property lies near the newly built Northwest Florida Beaches International Airport — a facility that St. Joe donated much of the land for, and that critics say is too large for the local market. If St. Joe wins its bet and the new airport spurs a significant increase in tourist traffic and in-migration, values for St. Joe’s nearby buildable land may turn out to be higher in reality than on paper. If not — well, anyone want to buy a runway?