Lennar fire sells billion dollar real estate portfolio
Posted by Erion Shehaj in Uncategorized on Dec 4th, 2007 | 0 comments
Today, CNN Money reported that one of the nation’s largest home builders, Lennar Corp unloaded a
massive portfolio of 11,000 properties at about 40% of their recorded book value. The portfolio originally valued at $1.3 billion will be sold to a joint venture for just $525 million. Morgan Stanley will have an 80% stake in the "joint venture" with Lennar retaining a 20% stake. The properties in question consisted of a collection of raw undeveloped land, partially developed homesites and finished homes. This move comes as a direct result of the significant levels of inventory that builders have recently been unable to sell due to the restrictions in the mortgage markets.
Home builders, like Lennar, had long relied on affiliated mortgage businesses that they utilized to push their homes to homebuyers through various no-money-down, option arm and other subprime mortgage products. This strategy was so streamlined that at the top of the housing market of the last few years, builders were "building away" inventory homes without concerns of the eventual buyers as they were in high supply. A builder representative summed it up pretty well for me a couple of years back:
"We don’t sell homes" – he said – "We sell financing!".
Although this may seem like a mammoth transaction to most people, it is in fact a pretty minor bet for Morgan Stanley. Like they always say in Wall Street: Any time there blood on the street, there are opportunities for those that can pick up the pieces. Just like the local real estate markets throughout the country have seen an influx of investors purchasing foreclosures in search of a good deal, the "big boys" are putting their deep pockets to work and are seizing the opportunity to profit from struggling builders and lenders.
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