Vultures Swoop In On Builders' Land

Today, finished home sites and raw land are now being sold by homebuilders for 50% to 75% discounts off peak 2005 values in the formerly hot regions, Peshkin says. For urban markets, prices have generally dropped about 25% in these states; the peripheral areas may have had 80% to 90% declines. In some peripheral areas, sellers can't even catch bids on communities under development and raw land, he says.

Starwood aims to make hefty returns by buying land and housing developments today at 40% to 50% of their 2005 peak market values. The bet is that values return to 70% or 80% of peak market value in the next three years.

"We're not seeing too much competition. Everyone is getting ready and is afraid to catch a falling knife," Peshkin says.

Peshkin says his firm is not calling a bottom in the market and grants the market could fall further. But at some point down the road, he expects the economy will improve and housing prices will stabilize.

In the interim, builders will continue to look to shed land and other assets that can't immediately be turned into cash, so as to preserve their balance sheets, he says.

With the exception of NVR(NVR), which controls nearly all of its land through option contracts, nearly every public homebuilder has large amounts of land left on its books, and cash is tied up in that inventory.

On Thursday, luxury-home builder Toll Brothers(TOL) warned of another $250 million to $450 million of land and inventory writedowns for its most recent quarter.

"For many years ... for public builders, land was a good word," Peshkin says. "Now it is a four-letter word."

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