Housing Giants - May 9, 2008 - (Page 14)

M&A Michael P. Kahn, Michael P. Kahn & Associates TIME TO HEDGE YOUR BETS Wrap your head around hedge funds or private equity firms before you dive in. MOST INTERNATIONAL BUILDERS’ SHOW buzz was about builders who had already filed, were filing or would be filing for bankruptcy and protection under Chapter 7 or Chapter 11. There was also talk about new alternative capital sources — people waiting to jump in and purchase home building assets once they believed house prices have bottomed out and even turned up a little. If you’re running out of free cash to support your home building or development business — and your banks are pressuring you to inject more equity or pay off their loans after the OCC finishes classifying loan portfolios — it might make sense to look to hedge fund and private equity funds for money. Capital is fungible and flows smoothly and freely. After opining the sources for the next wave of capital for home builders, I have spent 15 months meeting with hedge funds and private equity groups to help them understand the opportunities. It is impatient money. 14 HOUSING GIANTS.5.9.08 Fund managers are compensated based upon capital invested, not money raised. Billions of dollars are waiting in the wings to be invested in “home building space” — Wall Street’s term of art. How I differentiate fund management teams: • Thirty-something-year-old MBAs who know nothing about home building and are looking to the law of averages to make their desired returns. These managers are potentially dangerous to home building and will make difficult partners. Stay away from them. They are the vultures you hear about. • Groups who acknowledge they know nothing about home building but have hired full-time ex-home-building senior managers or look for guidance from industry experts. “We want to purchase assets at 20, 30, 40 and 50 percent and hold them until they’re worth 60, 70, 80 percent” was what WWW.HOUSINGGIANTS.COM http://www.mpka.com/ http://WWW.HOUSINGGIANTS.COM

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Housing Giants - May 9, 2008 Contents Viewpoint News and Moves Tech M & A The New Housing Demographics

Housing Giants - May 9, 2008

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