NEW YORK (CNNMoney.com) ? In another sign of the collapse of the market for new homes, builder Lennar Corp. has dumped a portfolio of 11,000 properties for 40 percent of their previously-stated book value.
Lennar (Charts, Fortune 500), the nation’s largest builder in terms of revenue, is selling the properties to a joint venture it has established with the real estate arm of Wall Street bank Morgan Stanley (Charts, Fortune 500). Morgan Stanley will own 80 percent of the joint venture, while Lennar will own 20 percent.
Lennar announced the deal late Friday as its fiscal fourth quarter came to a close. It is selling the properties for $525 million, even though it said their book value as of Sept. 30 stood at $1.3 billion. Lennar also will receive fees for continuing to manage the properties, which include mix of raw land as well as partially and fully developed homesites.
The shares of most major home builders were up in early afternoon trading Monday, with Lennar gaining nearly 4 percent, while Morgan Stanley shares were off 1 percent.
The nation’s home builders, including Lennar, have been hammered by the problems in the mortgage securities market and the downturn in housing. Last week, the government’s report on new home sales reported a record glut of completed new homes for sale, and the biggest year-over-year drop in the median price of a new home in 37 years. Most builders have had to take large charges against their earnings as they revalued their holdings and walked away from options to buy additional land.
But the deal also suggests that bargain hunters on Wall Street might be willing to step in and try to grab some prime properties at a fraction of their previous value.
“I think this is really starting to show some of the desperation,” said Hugh Moore, a principal at Guerite Advisors, a research and financial advisory firm. “The problem is that these national builders came in and overpaid at the top of the market. It was a land rush mentality. And Lennar had the reputation for being one of the more careful buyers.”
Mike Larson, a real estate analyst with Weiss Research, said there are a number of so-called vulture investors out there looking to make big purchases in distressed real estate, and that a deal of this size could help spur more of these types of purchases.
“You’ve got a benchmark to use now,” Larson said. The 60 percent discount paid by Morgan Stanley doesn’t mean that homeowners looking to sell their own homes are facing that kind of discount, he said. “For sellers holding out for unrealistic prices, it should be a wake up call.”
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http://money.cnn.com/2007/12/03/news/companies/lennar_morganstanley/?postversion=2007120314
