Bruce Gross: In many instances, we made an active decision to take what might have been impairment and then turn it into a realizable tax loss by concluding a sale transaction relative to the underlying asset. While the Morgan Stanley asset sale has received a lot of attention, there were a number of asset sales that may be more behind the scene that were part of creating the sale transaction, that resulted in the tax recovery.
Eric Landry (Morningstar): It appears that the big builders today are well prepared for whatever the market has to throw at them over next several quarters or even years whatever you have. Was this the case back in the late 80s early 90s?
Stuart Miller: No. There are some significant differences right now. First of all in prior downturn, the capitalization of most of the big homebuilders was in the 60%, 70%, 80% range going into the downturn. Most of the big builders in the current field started at the beginning of this downturn with debt-to-total cap ranges in the 30%, 40%, 50% range. The starting point was a better capitalization. Secondly, the capitalization in the prior downturns was always defined by short-term debt. In the current market, all of the big homebuilders are capitalized with longer term fixed rate debt as a base to their base business. Those two factors are significant shock absorbers for the homebuilders in this downturn and are creating a lot more stability. The lessons of the past have been heeded in a lot of ways. It does not mean that there have not been mistakes made, but the severity of this downturn has not yet proven fatal, and most of the builders are likely to be able to sustain themselves through that.
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