Greenlight Capital & Third Point Buy Green Brick Partners Shares in IPO ~ market folly

Thursday, July 2, 2015

Greenlight Capital & Third Point Buy Green Brick Partners Shares in IPO

David Einhorn's Greenlight Capital and Dan Loeb's Third Point have both filed 13D's and Form 4's with the SEC regarding their stakes in Green Brick Partners (GRBK).

Green Brick came to be via a reverse merger with BioFuel (formerly BIOF) last year.  The company just completed its IPO and Einhorn and Loeb both acquired more shares.  In fact, they've been involved with the company since 2010.

Einhorn now owns 49.9% of Green Brick with over 24.12 million shares per the 13D he filed.  Greenlight bought over 8.4 million shares in the IPO.

Loeb now owns 16.9% of Green Brick with over 8.18 million shares per their separately filed 13D.  Third Point acquired over 2.84 million shares in the IPO at $10 per share.

It's also worth pointing out that the CEO Jim Brickman owns a substantial stake in the company as well and has a ton of industry experience.

Per Google Finance, Green Brick Partners "is a real estate operator. The Company is involved in the purchase and development of land for residential use, construction lending and home building operations. The Company operates through two segments: land development and homebuilding services. Within homebuilding services segment, the Company has two divisions: Texas and Georgia. The Company's land development segment conducts its business under the brand Green Brick Communities."

According to the company's website, Green Brick owns around 3,900 home sites and originates 1,000 secured first lien loans a year.  They also own a controlling interest in 4 homebuilders in Dallas, Texas as well as the fifth largest homebuilder in Atlanta, Georgia.

The company seems to be uniquely positioned due to its focus on Texas, and specifically, the Dallas / Fort Worth metroplex.  These cities/suburbs have very limited housing inventory and high demand, which has been pushing up home prices markedly.  This demand is in part caused by a large number of corporate relocations to the area.

Texas has been attracting these companies via Governor Greg Abbott's focus on tax breaks for businesses who come to the state.  He recently signed $4 billion in tax cuts for businesses and homeowners and also cut the business franchise tax by 25%.  Texas also has no state income tax.

The DFW area specifically has recently seen corporate relocations of Toyota's North American Headquarters, FedEx Office, Liberty Mutual, and many more.  This is bringing thousands of jobs to the area, resulting in a need for more housing supply. 

So home prices are up and inventory is down, but at the same time, many homebuilders are also facing increased costs on materials and labor (shortage of qualified subcontractors, etc).

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