Lennar (NYSE: LEN), the nation's second-largest homebuilder, recently acquired Realstar Homes. It was an under-the-radar deal -- Lennar didn't even put out a press release announcing the acquisition -- for a small, regional homebuilder. However, it has important implications, given Realstar's focus on the fast-growing coastal Carolinas region.
Here's a closer look at the deal and how it will benefit Lennar.
The 411 on Realstar Homes
Realstar Homes has been building homes along the coast of the Carolinas for more than 75 years. The company focuses on quality over quantity, highlighted by its 2M Quality Inspection program. It features a third-party quality inspection of every home before new homeowners move in.
The company is currently selling across 10 neighborhoods in the coastal Carolinas region, including Ocean Isle Beach in North Carolina, and Myrtle Beach, Pawleys Island, Hilton Head Island, Little River, and Conway in South Carolina. These markets are all near the Atlantic Coast and are primarily vacation and retirement destinations.
The real star of this deal
While a relatively small deal, this acquisition has several strategic benefits for Lennar. First, it will provide the company with some incremental sales volume this year, which will help it meet its near-term financial targets.
In addition, the combination will help boost the company's regional scale in the Carolinas. Lennar currently builds about 10% of its homes in that region. It's the second-largest builder in the Myrtle Beach area (and the leader in nearby Charleston, South Carolina). That scale will help Lennar offset some of the inflationary pressures it's facing due to strong demand and supply chain problems.
Aside from the cost-saving advantages of having a greater scale in the region, the biggest draw of Realstar Homes is its location focus. The coastal Carolinas region is benefitting from the Sun Belt migration trend, which is seeing more people move to warmer, cheaper areas of the country. While Charleston is the biggest draw -- it was the most popular city of its size for relocation last year -- other smaller cities along the coast are also benefiting from this trend. For example, Myrtle Beach's population has grown 32% over the past decade, making it one of the fastest-growing metros in the country.
In years past, one of the big drivers has been an influx of retirees from Northern states. They've steadily moved into the region to take advantage of its warmer climate, which allows for nearly year-round outdoor activities like golf, walking, and enjoying the sun and sand of the beach. On top of that, the region has lower tax rates and more affordable housing.
Now, younger people are similarly starting to take advantage of warmer and cheaper coastal Carolina climates. Thanks to the pandemic, a growing number of younger workers now have the flexibility to work from anywhere. They're increasingly choosing to relocate to more affordable areas that offer the opportunity for nearly year-round outdoor living, which is a hallmark of the coastal Carolina region.
The Realstar Homes acquisition will allow Lennar to take greater advantage of this trend. It will add more communities in the region to its current sales roster to benefit from existing demand. Meanwhile, it will also increase its land inventory in the area, positioning it for future demand growth.
A real smart acquisition
Lennar's Realstar Homes purchase isn't a headline-grabbing deal, given the target's relatively small size. However, it's a strategic move that should benefit Lennar in the near- and long-term. That makes it a wise move that should enhance its ability to grow shareholder value for investors.