Lennar's Sensible Fire Sale

Just as you can't always tell a book by its cover, you sometimes don't get true facts from an article's headline. Take this one, for instance.

I can't uncover the slightest evidence that Lennar (NYSE: LEN  ) , the big Florida-based across-the-country builder, actually dumped any homes in the new deal it put together with Morgan Stanley (NYSE: MS  ) . But it has shunted aside about 11,000 properties, consisting of a mixture of raw land and homesites in various stages of development.

The properties will go to a new Lennar-Morgan Stanley joint venture that will be 80% owned by the New York investment bank and 20% owned by Lennar. It appears that Lennar will take about $525 million for those lots, a major drop from the $1.3 billion at which they were valued on the company's books on Sept. 30. Beyond that, given the frenzied pace of land write-downs that has occupied all the big builders during the past year, you have to believe that the properties once carried a significantly higher value.

It seems to me that there are several lessons Fools probably should take away from the announced joint venture and property deal. First, if the powers that be at Lennar (who are among the most capable in the industry) had even briefly thought that our nation's housing market was approaching that elusive "bottom," there's absolutely no way they'd have dumped properties in such volume at just $0.40 on the dollar.

Second, I hope we'll see other deals of this type emerge, perhaps including the likes of Centex (NYSE: CTX  ) , D.R. Horton (NYSE: DHI  ) , or Pulte (NYSE: PHM  ) . They're a means of more rapidly paring the builders down to their fighting trim, which has to occur before any sort of a turnaround in the group can take place.

Third, I'd rather not hear chatter about "Wall Street vultures" waiting to prey upon the hapless homebuilders. Morgan Stanley -- and perhaps later its banker brethren -- is providing a pressure valve for those downtrodden companies. If it makes a profit in the process, all the better.

And finally, I repeat my now-timeworn caveat that, the builders' efforts notwithstanding, housing in the U.S. will only regain its investing appela when our current mortgage disarray gets cleaned up. Until then -- and that transformation may not take place as early as 2008 -- there are far better places for Foolish funds' deployment.

To build upon related Foolishness:


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 545994, ~/Articles/ArticleHandler.aspx, 10/24/2014 4:53:08 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement