GRBK - Black Bear Value Fund - Green Brick Partners: An Excellent Capital Allocator

• There is a long-term fundamental supply/demand imbalance in housing inventory.
• Green Brick Partners has been reinvesting their cashflow in additional lots/land inventory.
• GRBK stock is valued somewhere between 5-8x steady-state earnings and potentially even cheaper than that.

The following segment was excerpted from this fund letter .

Green Brick Partners ( GRBK )

Green Brick Partners is a residential land developer and homebuilder. Most of their operations are in Texas, Georgia, and Florida.

GRBK was formerly a private partnership between Jim Brickman and entities related to Greenlight Capital (managed by David Einhorn). David is currently the Chairman of the Board.

As discussed earlier, there is a long-term fundamental supply/demand imbalance in housing inventory. This is a direct result of underproduction of new homes amid a challenging mortgage financing environment over the last 10+ years since the Great Financial Crisis. Looking forward we should have increased housing demand from millennials as they enter the family-phase of life and desire more space.

It is rare to be able to partner with an excellent operator and an excellent capital allocator. As evidenced by our investment in AutoNation, when you marry those 2 concepts you can wind up with a wonderful result. GRBK has been reinvesting their cashflow in additional lots/land inventory. This masks the earnings power of the company.

The company is valued somewhere between 5-8x steady-state earnings and potentially even cheaper than that. I tend to be more conservative given the potential for rate rises and inflationary increases in development costs. We have high-quality stewards at both the operating and Board level.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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