Financial, Real Estate, Stock Markets Trends and Current Affairs

Lennar has been in the news as of late, with the Street.com running a piece on joint ventures, and the Chicago Business News (hat tip to Michael for pointing this out) doing a piece on Lennar recieving a foreclosure filing. The followers on my blog were alerted to the dangers of the JVs, Lennar' in particular. several times over the last few months. The new media rags are late to the party. We performed a very, very extensive analysis of Lennar's off balance sheet holdings and liabilities, much of which is easily missed by just studying the 10Qs, in Voodoo, Zombies, Lennar�s Off Balance Sheet Accounting and Other Things of Mystery & Myth (a must read, IMO, for anyone who follows this space - Enron redux). I plan to follow up on Lennar's 50% haircut does not make them look any better and Lennar gets a haircut, a shave, and a mustache trim with a fully fleshed out calcuation of their position, which I have had on my desk for weeks, but unfortunately have not had a chance to post. I will dedicate today to putting out content, so stay tuned.

From the Street.com: "Of course, not everything is in the financials.

On the basis of conversations with several industry sources familiar with some of the ventures, it appears that there are several issues set to unfold at the company.

A good portion of the JVs -- mostly the ones in better locations -- have 10% to 20% equity from Lennar. But some of the ventures are 50/50 partnerships with weaker secondary players, says a former Lennar employee.

I've warned on CRE several times over the last 4 months, in significant detail. The mainstream media seems to have picked up on the trend. I will try to keep my readers ahead of the curve on this, primarily by extending the posts linked at the bottom of this article. I will have detailed info in a few days on the short that I have been working on. In the meantime, from wsj.com:

"The credit crunch triggered by the downturn in the housing market is creating problems in commercial real estate, driving down prices of office buildings, shopping malls and apartment complexes, and leaving some owners scrambling for cash.

One victim is Centro Properties Group, the fifth-largest owner of shopping centers in the U.S. The Australian real-estate company saw its share price fall by 90% in two days last week as it struggled to refinance short-term debt it took on to fund its $6.2 billion acquisition of New Plan Excel, one of the biggest owners of strip malls in the U.S.

Centro had planned to pay off the short-term loans by selling long-term debt via the commercial mortgage-backed securities market, but the lack of buyers forced it to get a two-month extension from its creditors. Commercial mortgage-backed securities, or CMBS, are pools of loans that are sliced up and sold to investors as bonds.

Don't think that this is just my quarterly carping and caviling of the CEO of a succcessful 3rd generation family business that has fallen on the ropes. I have a lot of respect for hard won, multi-generational wealth. I really mean that, lot of respect. It is very difficult to become a centi-millionaire while finding the time to instill within your children the principles and drive to continue what you have built. What I am doing quarterly though, is taking note of the significant mishaps of this latest in the generational success story. Ara Hovnanian has fallen on some relatively rough times, like practically everyone in the residential real estate industry. I know the feeling, and I defintiely sympathize. In this particular case though, I truly doubt the CEO's ability to weather through the storm - a storm which he is responsible for turning his ship straight into. As a recap, Hovnanian was one of the first builders to really market their sharp cost cutting through the national press, which I simply thought was laughable in its simplistic attempt to conceal the true results of the effort. Then I browsed through their financials and the usual due diligence stuff to see that they have a whole host of problems, most of which are not mentioned in the press, such as:

• a lot of bad mortgages on the books (I warned of this risk in detail in the first post on my blog),
• a CEO that purchased personally at the top of the market with a 100% LTV loan (yeah, that's right) now trying to flip it very shortly thereafter in a down market,
• legal issues stemming from overly aggressive loan underwriting, etc.

I glanced at the results the following quarter, and more of the same . I attempt to provide a useful contrarian perspective, one that would have come in handy during the heady, debt driven, purchase boom peak of 2005.

Apparently, the Citibank analyst that has issued several bullish reports on the builders during their downturn is at it again. Citibank has enormous analytical resources, considerably more so than my operations. Despite this, I find the facts to be at odds with his findings, not to mention common sense. The only conclusion is that this sector is being pushed for reasons other than fundamental. My analysts and I see several bankruptcies imminent in this sector. Citibank sees a buying opportunity in the public equity. One of us is very wrong. Or are we both right with differing objectives??? This guy is unbelievable. First, let's go through the press release:

Citigroup Analyst Says Homebuilders May Be Most of the Way Done Writing Off Land

NEW YORK (AP) -- Shares of homebuilders closed mixed Tuesday after a Citigroup Global Research analyst said companies in the sector may be nearly finished adjusting their books to reflect land that has lost value. Wouldn't this mean that the underlying market that caused the land to lose value would be nearly finished in its decline?