Lennar takes a 60% hair cut to unload properties.

From WSJ.com:

Lennar Corp. has sold about 11,000 home sites to a venture mostly owned by the real-estate arm of Morgan Stanley for $525 million, a large land sale that signals that investors have begun to pounce on bargain deals.

The sites -- in 32 communities in areas hit hard by the housing downturn -- were valued on Lennar's books at $1.3 billion as of Sept. 30. The low price the venture paid is a vivid sign of how land values have plummeted with the downturn, precipitated by defaults on subprime mortgages and tightening credit that have led to a broader slowdown in sales.

I could have sworn Lennar's CEO was just in the news saying they were going to mothball properties (sit on them) until the market turns. Maybe I was imagining it. My Voodoo post alleged Lennar was borderline insolvent. This recent news item simply reinforces that, and brings them closer to that insolvency. The assets that I used for that calculation have now been but by $775 million, albeit they have been replaced by cash which Lennar is in desperate need of. Hence, they are closer to balance sheet insolvency, yet have pushed cash flow insolvency back another $525 million.

For those who haven't been following Lennar in my blog, here is a quick update on their situation:

• Voodoo, Zombies, Lennar’s Off Balance Sheet Accounting and Other Things of Mystery & Myth
• Straight Talk From the ex-Homebuilder CFO: Yes.. straight from the Lennar CEOs mouth... land has zero value...
• Straight Talk From the Homebuilder CFO: The tricks builders use to disguise the true losses on their book value
• Straight Talk From the Homebuilder CFO: The Coming Land Recession, Pt I
• Straight Talk From the Homebuilder CFO: The Coming Land Recession, Pt II
• Straight Talk From the Homebuilder CFO: How independent are the independent auditors?

G

Comments

[mike]

Congrats... although I think you may have been as surprised as I was, or as a bull was, to see LEN do this. These guys have a serious transparency problem. And look at Mr. Kim's comments this morning regarding this transaction hahahaha.... why is he making his mother cry that she has such a stubborn perma-bullish son, why???

[Reggie]

Actually, I wasn't surprised at all. Listen, they have to sell the stuff one way or the other. I actually think land and home buyers who go in now are probably overpaying by chomping at the bit too early. I see MS was smart enough to make the deal highly structured, though. I would be content to wait a bit and let the land sellers get a little more desperate. Once the housing market bottoms, it is not like it is going to leap back up anywhere near bubble prices. So patience remains a virtue.

As for Kim, I would ignore him unless he is able to push the builder prices up high enough to allow another profitable round of shorting. If I get the time, I will graph his opinions next to mine.

[Arun]

More Lennar fire sales

http://www.presstelegram.com/ci_7628589

http://www.sptimes.com/2007/12/05/Business/Developer_scoops_up_p.shtml

At this rate it appears that Lennar is padding itself for 4Q report or they are selling to raise cash to pay the bills.

Or, is it a clever tactic to stiff the bond holders until they can enter Chapter 13 BK and reorganize? The MS deal structure with 50% voting control seems quite funny.

What is your take on it Reggie?

[Reggie]

I think Lennar's creditors were leaning on them hard and Lennar was hard pressed to generate liquidity. They are between a rock and a hard place here. By generating liquidity, they are marking their inventory to market which looks ugly in this environment. I will make this a new post.

50% voting control means that they paid for the right to veto MSs direction in the JV if they see fit. I am sure there is a clause in the contract that makes things a little clearer, though. If not, then it is probably litigation waiting to happen.

[va refinancing loan]

those guys have issues right now!