Value of Standard Pacific's Land Owned

Some insightful commenters are debating the SPF book value post:

"Need to know how much of the land they owned was purchased before 2004. This land probably appreciated 50% and has no chance of going underwater and might be understated on balance sheet. Perhaps $400 million of the land on the balance sheet is from pre 2003 and is actually worth closer to $1 billion. You need to check this out. But I suspect you are right that book value is somewhere under $20 but may not be as bad as you think. Without being able to do a detailed analysis of their land holdings you have no clue what the land might be worth."

Of course I wish that SPF would give us a list of their land holdings. But until they do, we can only make educated guesses.

First of all, builders do not use LIFO or FIFO accounting for land inventory because land is not fungible. Each parcel is unique.

I think we can say that SPF's landholdings are skewed to the more recent. In a sense, the first-in land is the first-out, because they 1)buy it 2)entitle it 3)build it 4)sell it. They buy land to replace what they get rid of through home sales.

That is why land developers exist. They take the highest risks in order to get in front of the homebuilders and sell land into the builders' pipelines.

Indeed, SPF is not in the business of investing in land for the long term. From the 2006 10-K: "We generally purchase land only when either substantially all material entitlements have been obtained or our management team has determined that no material impediments exist to obtaining such entitlements, and we anticipate commencing development or construction within a relatively short period of time."

We know that they bought $1B land in 2006, at least that much in 2005, and they've never had more than $4B in inventory. I get the sense that they turn over their land in under four years, so I question how much of the land on the balance sheet is from pre-2003. (They do have JV lots that are as old as 1997.)

Second, land bought pre-2003 might have been worth 2.5x during the height of the mania, but now it is probably worth par. Possibly even less. This real estate bubble has been going on longer than four years. And when land values fall, they fall hard. They are a bet on home prices and builder profit margins.

I grant that the old JV land, and the old land owned (if any), are undervalued on the books. But my suspicion is that the amount of that land is dwarfed by the way overpriced land.