Landlocked Homes Catching a Falling Knife

Landlocked Homes Catching a Falling Knife

By
Douglas Abbey, Chris Mahowald, Max Lamont
2012|Case No.RE137 old version| Length 22 pgs.

In March 2008, a group of investors considered purchasing 8,300 residential lots in 11 states from one of the largest U.S. homebuilders, at a price of 10 cents on the dollar. The deal would also involve purchasing a partially-built condominium complex, also at a substantial mark-down from the amount already invested.

This case describes the residential real estate development business and the role of land in homebuilding. It describes the excesses leading to the housing crisis in 2008.

The case is based on a real situation, but company names and some details have been changed.

Learning Objective
The case was designed for a course on real estate. It can be used to facilitate discussion of a number of issues, including: supply and demand, valuation of land and housing, the impact of critical assumptions on real estate development investment returns, and sources of risk in prospective real estate development investments. It can also be used to discuss appropriate partners for real estate investments, and the associated risks.
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