Lennar’s multifamily segment posted a loss in the fourth quarter and the unit is projected to weaken further at a time when a media report says the national homebuilder has hired JLL to sell a portfolio of 11,000 luxury apartments in its Quarterra arm for an estimated price of $4.5 billion.
The proposed sale, reported earlier by Bloomberg Law, would amount to roughly a quarter of Quarterra’s total inventory as of its 2022 annual report.
Lennar did not offer a comment to CoStar News about the apartments said to be listed for sale.
The company said its multifamily segment recorded a $12 million loss in the fourth quarter compared to a $15 million gain in the same period a year ago. Total losses in the segment are now above $50 million for 2023.
Miami-based Lennar launched its apartment development business in 2011 as Lennar Multifamily Builders. It rebranded as Quarterra Multifamily in July 2022 in anticipation of spinning off the company later that year. Operating earnings in 2022 amounted to $69 million with $46 million coming in the third quarter. But by December, rising interest rates, slowing rent growth and persistent supply chain issues persuaded Lennar to pull back from the spin-off indefinitely.
“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 fourth-quarter earnings call from December 2022. “I'm not prepared to posit another date, given current market uncertainties.”
Quarterra’s 60 properties and more than 41,000 units are located coast to coast in markets including Miami, Chicago, Dallas, Denver, San Francisco and Los Angeles, according to the annual report.
Through the first half of 2023, losses to Lennar’s multifamily business began to mount. Overbuilt markets and slower-than-usual rent growth led to a $30 million operating loss in the first six months of the fiscal year.
Projections for the first quarter of 2024 made in an earnings call with Wall Street analysts on Friday were no better. The company’s multifamily business could lose $25 million over that period, estimated Diane Bessette, Lennar’s chief financial officer.
Quarterra is currently ranked seventh on the National Multifamily Housing Council’s list of largest apartment developers. In 2022, the company broke ground on more than 5,200 units.
Asking U.S. apartment rents rose through 2021 and early 2022 as tenants rented new, available units, according to CoStar data. But by the second half of 2022, that trend all but disappeared, with the number of move-outs surpassing move-ins in the fourth quarter as supply slowly increased. With growing vacancies, national rents began turning south as early as July 2023.
Declining rents have also damped the for-sale market. Both sales volume and price per unit have been falling since the second quarter of 2022. CoStar analysts are forecasting further price declines through the third quarter of 2024.