Homebuilder JVs: Another By-Product of Hedge Fund Failures

Most homebuilders have been selling land to raise cash since the housing market tanked in 2006. Many of the industry's biggest players were caught with huge land inventories whose values have declined precipitously. Several homebuilders said on Q3 conference calls that despite the selloff in lands that they needed or wanted to monetize, or that had little value for the foreseeable future, they were positioning themselves for when the market turns and great values can be found. Some, like Hovnanian (HOV) have been in contact with potential partners, particularly private equity and hedge funds, to set up joint ventures for the day they hope will be nearing soon.

As hedge funds fail however, the pool of potential partners is contracting. Surviving hedge funds will likely be wary of joint ventures. Cautionary tales such as Calpers' could be a big inhibitor. Fewer partners to take advantage of land deals when banks unload them could prolong an already long-way-off recovery.

From Hovnanian Enterprises FQ408 conference call:

As of October 31, total lots were down 67% from the peak that we reached in April, 2006. While we are currently focused on reducing our consolidated land supply, we’re cognizant that at some point the market will hit bottom and banks will mark... more non-performing real estate assets down to the levels that will allow them to move it off their books.

Our goal is to team up with joint venture partners to take advantage of the land prices that will inevitably become more attractive both directly and through the purchase of loans. We continue to have discussions with potential JV partners to establish ventures that would take advantage of land at the bottom of the market. Some of the names of the private equity and hedge funds that we are talking to today have changed from the ones we were talking to months ago.

Given the turmoil in the capital markets, some that were interested this past summer have stepped aside but, new interest have developed from others that have stepped forward. We are not ready to buy land today given the market dynamics but getting the venture structure set up ahead of time when we do see opportunities to buy land, we can move quickly.

Comments

[notsosmart:]

more bs.

2008 Dec 20 02:23 PM