Real estate giant: Housing's hit bottom

May 29th, 2010, 12:01 am ·

· posted by Jeff Collins

Real estate mega-firm First American Corp. of Santa Ana is spinning off its property and consumer data business into a separate company, a move designed to increase the value of the company's stock. First American's title insurance arm and related subsidiaries will operate under the name First American Financial. The data and analysis arm will operate under the name of CoreLogic.

Parker S. Kennedy, the great-grandson of company founder C.E. Parker, will remain in charge of both companies, serving as executive chairman. We sat down with him recently to discuss the split and the economy. Here's a synopsis of his comments, with his actual quotes in quotation marks.

Us: Before we discuss the spinoff, what does your crystal ball tell you about the future of the housing market?

Park: "I would say it feels a lot better now. I feel the values in some communities will drop, but not by much."

Values have improved. Investors are back in the market, and they've picked up some low-value properties. That may be good. It may be bad. But it means we have hit bottom.

"I don't think real estate markets will get back to where they were in '05, but I don't think they should. That was not realistic." We're now back to a good real estate market. It's hard to get a loan. You've got to prove how much you're making and be able to afford your home.

Us: Since you have the largest bank of real estate data in the nation, why couldn't you foresee the housing market crash?

Park: "I would say we didn't see it coming in the severity that it came, but we're in pretty good company. But I think if we had looked at our own data more carefully, we would have seen it coming."

Us: What in your data might have foreshadowed the meltdown?

Park: If we had looked at loan to values on a dynamic basis, we might have seen a cloud on the horizon.

"But that's not our job. Our job is to provide data to those who ask for it. We don't do a lot of economic prognostication. ...

"We did get an inkling of it early on from our data. It became very clear early on that there were a lot of foreclosures and that home values were falling at an early stage. But it was hard to extrapolate from our data what would happen. I don't think anybody saw that (meltdown) coming."

Us: Why the spin-off?

Park: The company has evolved a lot in the last 15 to 20 years. We have used profits from the title company to build the information solutions business.

The two businesses are very different. One is a title insurance business with elements of insurance companies. The other is an information company, with steadier revenue streams and better profit margins.

Ten years ago, analysts suggested splitting the company in two. We resisted that at first, thinking we could better serve our customers as one company. More recently, however, we thought better of the idea. As two companies, it would be better for shareholders.

As a rule, shareholders tend to be interested in one side of the company or the other. No one is completely happy owning both sides. Now shareholders can pick, owning shares in one company or the other.

"I think it will push the value of the shares up. ... CoreLogic had a depressed multiple. (This way) it will have a higher multiple of earnings because it will be a pure-play information" company.

The title company used its profits to grow the information company. Now it will be able to use the capital as it sees fit.

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