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Centex Land Sale a Discount Reality

The homebuilder sells a swath of lots, valued at $528 million, for $161 million.

Real estate vulture funds continue to profit at the expense of cash-strapped homebuilders forced to sell land at bargain-bin prices.

This time around



, one of the largest U.S. homebuilders, has sold about 10% of its land holdings to a joint venture of financial partners that includes Dallas-based RSF Partners and San Francisco-based Farallon Capital Management. The sale price was $161 million.

While the sale raises much needed cash for Centex, it highlights how builders are selling land at steep discounts to original purchase values. Stephen East, an analyst with Pali Capital, estimates Centex sold the land for 18 cents on the dollar.

The deal also signals that builders may not be properly valuing their land positions on their books. Centex carried the land for $528 million on its balance sheet -- more than three times the sale price.

The portfolio totaled 8,500 lots in 27 neighborhoods across 11 states, mostly in California and Nevada.

"Given the well-known weakness in the markets, we are surprised that CTX had not been more realistic in its mark down of land in its impairment process the prior quarter," East wrote in a research note. "Did they really think three months ago this land was worth more than 3 times what it was sold for?"

Centex says the sale will result in an additional $294 million tax refund. While the cash proceeds are nice, the deal will likely trigger additional land writedowns at the builder.

"While the price and attendant impairment charges to come are disappointing, it is likely the right move to exit land that just has little use to CTX for the next 3-5 years," East wrote in a note.

Centex shares rose 3% to $24.92 in recent trading Tuesday. Other homebuilders tracking higher Tuesday along with the broader market include


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As the housing market plummets, real estate opportunity funds are set to sink billions into distressed residential land investments.

Farallon, which is considered one of the smartest hedge funds around, could see significant upside from its purchase from Centex.

Centex is retaining a 5% interest in the joint venture and has the right to receive a greater share of the profits if certain financial targets are met.

The deal comes on the heels of Centex's sale Monday of its pest control business to consumer services company Rollins Inc. for $137 million.