Black Bear Value Fund - Green Brick Partners: An Excellent Capital Allocator

Summary

  • There is a long-term fundamental supply/demand imbalance in housing inventory.
  • Green Brick Partners has been reinvesting their cashflow in additional lots/land inventory.
  • GRBK stock is valued somewhere between 5-8x steady-state earnings and potentially even cheaper than that.

Man building small model home

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The following segment was excerpted from this fund letter.


Green Brick Partners (NYSE:GRBK)

Green Brick Partners is a residential land developer and homebuilder. Most of their operations are in Texas, Georgia, and Florida.

GRBK was formerly a private partnership between Jim Brickman and entities related to Greenlight Capital (managed by David Einhorn). David is currently the Chairman of the Board.

As discussed earlier, there is a long-term fundamental supply/demand imbalance in housing inventory. This is a direct result of underproduction of new homes amid a challenging mortgage financing environment over the last 10+ years since the Great Financial Crisis. Looking forward we should have increased housing demand from millennials as they enter the family-phase of life and desire more space.

It is rare to be able to partner with an excellent operator and an excellent capital allocator. As evidenced by our investment in AutoNation, when you marry those 2 concepts you can wind up with a wonderful result. GRBK has been reinvesting their cashflow in additional lots/land inventory. This masks the earnings power of the company.

The company is valued somewhere between 5-8x steady-state earnings and potentially even cheaper than that. I tend to be more conservative given the potential for rate rises and inflationary increases in development costs. We have high-quality stewards at both the operating and Board level.


Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Single stock ideas excerpted from fund letters published by Seeking Alpha.

Additional disclosure: THIS DOCUMENT IS NOT AN OFFER OR THE SOLICITATION OF AN OFFER TO BUY INTERESTS IN BLACK BEAR VALUE PARTNERS, LP (THE “FUND”). AN OFFERING OF INTERESTS WILL BE MADE ONLY BY MEANS OF THE FUND’S CONFIDENTIAL PRIVATE OFFERING MEMORANDUM (THE “MEMORANDUM”) AND ONLY TO SOPHISTICATED INVESTORS IN JURISDICTIONS WHERE PERMITTED BY LAW.

This document is confidential and for the sole use of the recipient. It is intended for information purposes only and should be used only by sophisticated investors who are knowledgeable of the risks involved. No portion of this material may be reproduced, copied, distributed, modified or made available to others without express written consent of Black Bear Value Partners, LP (“Black Bear”). This material is not meant as a general guide to investing, or as a source of any specific investment recommendation, and makes no implied or express recommendations concerning the matter in which any accounts should or would be handled.

This presentation contains certain forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties which may cause actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking statements and projections. Prospective investors are cautioned not to invest based on these forward-looking statements.

© Black Bear Value Partners, LP

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