Using Veritas to Construct the "Per…

29-04-2017 Hits:87156 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:81086 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:80925 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:85398 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:81900 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:84088 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:55145 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:83338 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:83083 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:82975 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:89223 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:86945 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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So many things to blog about lately. The current environment is fraught with risk and opportunity, it appears they are two sides of the same coin.

Hat tip to Arun, who pointed out that Lennar has sold much more property in their "fire sale". I would like to note that, at least for the time being, these transactions should not be considered fire sales, but normal economic activity considering the macro environment.

  • Lennar sells stake in SeaPort hotel development (actual numbers of the deal not revealed) and;
  • A Tampa developer made the biggest land gain in its five-year history Friday, scooping up 8,300 home sites in seven counties from financially troubled Lennar Corp. The Miami-based company lost $514-million in the third quarter this year on top of a net loss of $214-million in the second quarter.

The first deal is not very descriptive, so trying to put numbers on it would be pure speculation. The second deal, we can at least guess where it puts Lennar - both of these deals are in areas that have been hard hit in the downturn. What is more important, IMO, is not so much how much land they have sold, but what the actual economic book value of their inventory is, and if it is in excess of their liabilities.

Let's take a conservative stab at it, but before we do - let's speculate. Using the numbers in the article, the Seaport hotel was a $129 million development (hard to put a figure on the retail and commercial since I don't know the area and am too lazy to look it up), just by running a simplistic per unit breakdown on the dollar size of the project given. Applying the 50% haircut that Morgan Stanley gave, that would approximate (or speculate) that Lennar raised about $65 million (plus some value for the commercial portion of the mixed use that even I wouldn't hazard a wild guess) in that sale. Using the same off the cuff calculation for the Tampa sale, Lennar raised about $453 million. Now, I know (and you should accept) that these are probably some fairly rough and inaccurate numbers, but I am trying to guesstimate what their current debt to enterprise value is. Applying the rough 50% valuation haircut that I came up with in the last post, Lennar has impaired its assets by an additional $518 million dollars (remember the MS deal). This means to me that, for valuation purposes, we should be subtracting about an additional billion dollars from Lennar's book value. A simpler way to look at it is to halve the value that you see as inventory on Lennar's balance sheet, and substitute cash in for inventory where they made a sale. It is overly simplistic, but it does give you a guideline. Lennar should now have cash to solidly service debt for a year. The caveat is, any smart lender should realize that the collateral ain't getting any more valuable and is not going to stop depreciating any time soon either. I would snatch my credit back, if I were them.

Using the new valuation levels, I am sure Lennar is now tripping their net worth covenants considering how much debt they are carrying off balance sheet (at least a billion, full recourse) - in other words, they are effectively balance sheet insolvent. I am not confident that the lenders calculate Lennar's debt to asset ratio accurately, though. Many seem to have missed the off balance sheet stuff. I guess that's why Lennar put it off balance sheet, duh!

As far as the insolvency goes, we will know for sure when they file their 8k. I know my shorts aren't going anywhere.

The funny thing is that Lennar, and the entire homebuilding sector, shot up in price about 3% yesterday. Remember Enron!!! The macro environment is horrible and getting worse for these companies. The development in the monoline industry that I have been crowing about for a couple of months now threatens to virtually shut down the mortgage industry for the time being. If you think it was hard to get a loan before... In about a week I will start revealing my short positions in the commercial real estate industry, and boy is it a eye opener. I will create a members only portion of the blog to allow real time access to my research, so the subscribing members do not have to wait. I should have that done by the end of next week.

For those who don't normally follow my blog, here is the Lennar backgrounder, which I feel is quite useful for any who have an economic interest in this company or any homebuilder.