Lennar, one of the nation's largest homebuilders, postponed spinning off its multifamily business by the end of the year as planned because market conditions have soured.
The Miami-based company announced in its quarterly earnings call a shift in a strategy that began over the summer when it rebranded its multifamily effort from LMC to Quarterra. Lennar wanted to spin off the business into a separate company and focus purely on homebuilding.
“The current market conditions are simply not favorable to our commercial asset manager spin on the year end timeline,” Alexandra Lumpkin, Lennar’s deputy general counsel, said on the company’s earnings call Thursday. “I'm not prepared to posit another date, given current market uncertainties.”
Market conditions began shifting quickly over the past six months: Interest rates skyrocketed as rent growth slowed, construction lending tightened considerably and there are still supply chain problems while building material prices haven’t dropped much and high labor costs persist.
Stuart Miller, Lennar’s executive chairman, described the conditions for homebuilding and for-rent construction as “very complicated.”
“Our current view is that production of single family and multifamily dwellings nationally will be down between quarter to a third in 2023, exacerbating the national housing supply shortage,” Miller said on the call.
Lennar launched its multifamily division in 2011. Quarterra was the 24th-largest multifamily developer on the National Multifamily Housing Council’s annual list this year, falling from No. 8 the previous year. It owns or manages 60 rental properties with more than 41,000 units.
Despite the change in strategy, Lennar’s multifamily business posted stronger earnings in its fourth quarter that ended Nov. 30, signaling what earnings in the final months of 2022 may look like when others in the apartment industry report.
Its earnings increased from $9.3 million in the fourth quarter in 2021 to $14.8 million in its latest quarter. Though higher, the earnings fell short of the $15 million to $20 million the company projected in its third-quarter results.
Revenue dropped from $188.4 million to $179.2 million. Revenue on the homebuilding side increased despite declining sales across the country. Home sales increased from $7.97 billion in 2021’s fourth quarter to $9.65 billion in the quarter this year.