Margaret Whelan, Managing Director, Real Estate and Lodging Investment Banking Group, JPMorgan If builders don't start hoarding cash under their proverbial mattress, they may not make it through to any kind of economic upturn. That was the theme at the Big Builder '08 Breakfast Banter session Nov. 5.

Michael Rehaut, Executive Director, JPMorgan

Cash, along with well managed balance sheets, is going to be the key to getting through this crisis, according to Michael Rehaut, executive director of equity research for home building and building products at JPMorgan. "In the next 6 to 12 months, stocks will be bumpy at best," he told conference attendees. "Your No. 1 job right now is cash preservation and balance sheet management because you want to talk--not drag--yourself out of this."

Looking back Rehaut did point to a positive during this housing crisis that was not present in the early 1990s. "[At that time], it took three-to-four years for big builders to get back to where they were," he said. "Today, builders are in a much better standpoint with their balance sheets."

The talk of the past continued with the question of a Resolution Trust Corp. (RTC) possibly returning to the playing field. Morgan Stanley Real Estate executive director Laurence Pelosi nixed the idea, saying, "That is not today's problem." However, he did acknowledge it as a future possibility. "The government saw the mistake of the RTC and won't let it happen again [when it comes to the Troubled Asset Relief Program (TARP)]."

But the markets right now are in the same situation as they were then. Learning from history, banks are holding on to land assets to see what the actual value is before they let go of them--the key mistake the government made in the 1990s, which cost American taxpayers $140 billion.

"The banks need to find out when to put these lands into the market," said managing director of JPMorgan Real Estate & Lodging Investment Banking Margaret Whelan.

Lennar Corp. Vice President and CFO Bruce Gross and JPMorgan Managing Director, Real Estate and Lodging Investment Banking Group, Margaret Whelan

Pelosi added it will be hard to beat the returns coming out of the RTC days, but Bruce Gross, vice president and CFO of Lennar Corp., pointed to the fact that getting a good return is all about "timing and location."

"We have to get our arms around foreclosures and figure out how to underwrite against that," Pelosi said. "If that doesn't happen, it will be hard to start new homes and think constructively."

Taking a more positive view, Larry Sorsby, executive vice president, CFO, treasurer, and director of Hovnanian Enterprises, said the market has the potential to rebound with abandon. "There is pent up demand continuing to build," he explained. "A tax credit will get the demand back out there, and we will quickly see a housing rebound; 2009 has a shot to be an OK year if a significant stimulus is passed, and then in 2010 we can begin to recover."

Gross, however had a less optimistic view regarding market recovery.

Left to right: Laurence Pelosi, Executive Director, Morgan Stanley; Larry Sorsby, Excutive Vice President, CFO, Treasurer, and Director, Hovananian Enterprises; and Bruce Gross, Vice President and CFO, Lennar Corp.

"It might take 10-to-15 years for builders to move back to where they once were," he said, adding that many companies will most likely consolidate. "Publics may buy privates, publics may come together. It will eventually happen."

Sorsby concurred, saying that there will consolidation in form of big builders acquiring smaller companies assets because the smaller companies will have a harder time finding funds--leaving the big builders to hold the majority of available market capital.

"More transactions will happen because assets have to trade," Pelosi concluded. "We will be busy from a private equity standpoint, and well-positioned companies will emerge from all this."

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