Buffett Gets Deeper Into Housing and Real Estate (BRK-A, LUK, GS, CIT, HD, LOW, USG)

Warren Buffett is positioning Berkshire Hathaway Inc. (NYSE: BRK-A) to profit when the housing and property market returns to more normal levels.  Now, he is teaming up with what many investors consider a “Buffett rival.”  Berkshire Hathaway Inc. (NYSE: BRK-A) is teaming up with Leucadia National Corp. (NYSE: LUK) to acquire the North American mortgage and servicing operations of Capmark Financial Group Inc.  Interestingly enough, a company affiliated with Buffett and Berkshire Hathaway called HomeServices of America made a real estate firm acquisition in Chicago earlier this week.

The Capmark deal is said to be valued at roughly $490 million.  Some may question this, but many believe a return is taking shape of at least some normalcy in the housing market.  Capmark is said to be looking for a debt restructuring and also looking at options for its business holdings as it has discussed bankruptcy protection as a possibility.  Bloomberg has made a reminder that Capmark is owned by firms including KKR & Co. and Goldman Sachs Group Inc. (NYSE: GS).  Bloomberg reminded readers that Buffett agreed to buy a portfolio of loans on factory-built homes from CIT Group Inc. (NYSE: CIT) in 2008.

In the Koenig & Strey deal, that firm will retain its name and become a franchisee within Brookfield Residential Property Services’ North American real estate network of almost 30,000 real estate professionals.  Koenig & Strey has approximately 900 agents located in 21 offices serving Chicago and the surrounding area.  Its sales were $2.6 billion in 2008.  The acquisition is the 21st for HomeServices, and it now has more than 15,000 real estate professionals and 21 companies operating in 20 states.

What is interesting is that in Buffett’s latest quarterly holding, Berkshire Hathaway lightened up in shares of Home Depot Inc. (NYSE: HD).  This is even more puzzling when you consider that he maintained his stake in Lowe’s Companies (NYSE: LOW) as the same as the prior quarter.  Another play and big bet tied to housing is USG Corp. (NYSE: USG) that Buffett holds some 17 million shares in which may be under-counted considering a preferred holding.  Buffett’s full list of public stocks is here.

Neither Buffett nor Berkshire Hathaway Inc. are new to this notion of housing and doing business around the housing market.  Some Berkshire Hathaway companies held as independent subsidiaries are Acme Brick Company, Clayton Homes, HomeServices of America, and Johns Manville.  Buffett also has significant operations in insuring and reinsuring housing, and he is no stranger to furniture and furnishings companies with several operations in the Berkshire family.

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As we noted last night with the mega-cap stocks holding some $335 billion in raw cash, Berkshire Hathaway probably has $50 billion that can be used for deals in the near-term and intermediate-term.  The full details of the Berkshire-Leucadia deal with Capmark are in the SEC filing.

JON C. OGG
September 3, 2009