Saturday, March 29, 2008

Land at 15 cents on the Dollar

by Calculated Risk on 3/29/2008 04:41:00 PM

Last night I spoke with a land developer. He just purchased improved land in SoCal (update: Inland Empire) for $0.15 on the dollar from a homebuilder (builder's total cost). The deal closed Friday. The purchase price was less than half the cost of just the improvements (grading, streets, etc)!

The deal has no leverage, and the buyers are hoping to sell in 3 to 5 years to another homebuilder. They can wait much longer if necessary. The other details (like buyer and seller) are confidential.

This is an important step. The homebuilders are finally starting to liquidate surplus land at prices that are attractive to "vulture funds", and this potential inventory is also being removed from the market.

I expect to see many similar deals this year as the homebuilders, and their lenders, struggle to survive.