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November 06, 2007



Most of the land decisions were done with high velocity and rising sales prices - killer for IRR models. Doubt many of the young MBAs doing the modeling had seen risk or RE slowdowns/declines before.

Execs didn't want to admit and slow the pipeline - easier to bail out when bonuses stopped - heck - golden handshake is often better than no bonus year.

Now look at how the CDOs were modelled on Wall Street!


The funny part is that you don't have to live through a slow down. All you have to do is study your history. RIF - Reading is Fundamental!

Sometime in the next day two, I will post a complete analysis Lennar, probably the most extensive available on the web. I will point out that spreadsheets can only take you so far. Case in point, what the price to book value tells you (Even adjusted) versus what grandma's good 'ole common sense will tell you. Lennar is close to practically insolvent.



Land has no value. Agreed. But why then does NVR, a DC based homebuilder, with options on land as its model, still trade at 2.5X book value?


NVR is a better managed company than many of its peers. Much of its inventory is of a vintage before the boom peak, so they have a much lower cost basis than Lennar, et. al., and they have cash. Due to the fact that they didn't binge on debt during the peak of the boom to buy land and hide the risk and losses in a bunch of off balance sheet vehicles, they are in a much better position than the average public builder.

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