In early February, The Ryland Group (RYL.N), the No. 9 U.S. homebuilder, announced the formation of a limited liability company with a financial partner to buy distressed real estate assets.
Being suspicious I would bet that the distressed properties are going to be Rylands and the objective for creating the LLC is to get these properties off of Rylands books at a higher then market price in order that Ryland not have to write off the decrease in their value and show a MEGA loss some quarter.
Moving this to another entity would only work if this land was not already deemed collateral for the debt on the company books. If it was deemed collateral, they could not just move it easily. Given they have had several renegotiations with their banks, I would think banks were smart enough to secure the loans against hard assets and not just the corporate "fraud" balance sheet.
I agree with you. It does not make sense for builders to buy land today because they stil lose money. The cost of developing land such as entitlement costs, city fees, taxes, interest, and overhead cannot be fully recouped at today's home prices. In California, builders are having a hard time recouping the cost of structure and carry cost. Ryland is going to move their bad asset to the LLC and agree to take option to buy back. This is typical in the industry. Lennar partner with Morgan Stanley over a year ago to move their bad assets.