Housing Giants - October 24, 2008 - (Page 23)

bottom line. It’s not like the good ol‘ days where things were done on trust,” Janecek says. “Finance people operate deal-by-deal. It’s more black and white. Private equity firms are looking for a return, and there’s a gap between what home builders have been used to and what these types of lenders are asking. “There are controls and caps on the deals that are structured,” he said, citing the well-publicized cash infusion that Standard Pacific Corp. received earlier this year. “You have someone requesting a certain portion of the money you aren’t used to giving up.” Toole supports the notion. “You want to understand who your partner is and how they do business. You’ll want to know their parameters — what are they going to want to see in terms of reporting? These private equity funds have a high level of sophistication. Builders might not be set up in their current accounting infrastructure to handle the demands of the private equity investors.” Other pitfalls, Janecek says, include limitations. “There are limitations on contracts, limitations on other financing. At some point you want to know if you can regain control of your company. What are the exit strategies? What are the rights of redemption?” more tHan casH The primary benefit that home builders can expect from private equity is cash, Janecek points out. But depending upon the private equity investor, other benefits can be gained for the home builder. “Not all private equity funds are created equal,” he says. “Some are financial engineers, others will have an operational bent, and they will come in to help the builder’s management team formulate a strategy,” he says. So exactly when might home builders expect to see private equity funds as a viable source of capital? “We are in a tough time,” Hogan says. “Yes, there will be deals, but at the end of the day, private equity is likely to sit on the sidelines until they feel there is a bottom.” And when that happens, what is the best advice home builders can take away? “Know the structure of what you are getting into and the length of time that will be involved, and what it does for your firm,” Janecek says. “Look for lawyers, accountants and advisors who can guide you along.” HG www.Housinggiants.com 10.24.08.Housing giants 23 http://www.standardpacifichomes.com/index.aspx http://www.housinggiants.com

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Housing Giants - October 24, 2008

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