Homebuilding and real estate firm Lennar (NYSE: LEN) announced that it will spin out its "noncore business units" and participate in a single-family rental joint venture.
The firm’s stock price jumped double digits on the day of the announcement, further cementing the institutionalization of single-family rentals.
Quick brief on Lennar
Founded in 1954, Lennar started as a pure homebuilder. Nearly 20 years later, the company went public. In the 80s, Lennar began to expand outside of its main business of homebuilding, moving into mortgages. The company has also expanded into commercial mortgages as well over time.
Ten years ago, Lennar started working on luxury multifamily projects. Over the years, the company has expanded its homebuilding through acquisition. At its core, Lennar has been a leader in homebuilding and single-family mortgage financing.
What does the company have planned?
The company’s 2021 first-quarter earnings call had two key takeaways.
- Lennar is going to be spinning out its noncore businesses to focus on single-family construction and mortgages.
- The company will begin digging into single-family rentals.
Lennar’s Chairman Stuart Miller said the company is going to focus "on driving higher returns with less noise in our numbers from lumpy profits…(which will) increase visibility for the capital markets." In other words, Lennar is going to trim the fat so that it can focus on its most profitable business lines to boost shareholder value.
The spun-off enterprise is supposed to have an asset base of between $3 billion and $5 billion, which could include Lennar’s commercial mortgage business, the company said on a post-earnings call.
This renewed focus on homebuilding comes on the back of housing being one of the few pandemic bright spots, with mortgage rates at record lows.
The single-family rental venture, which Lennar is doing in partnership with private equity firm Centerbridge Partners and Allianz Real Estate, will be called Upward America Venture.
Some other institutional investors will also be investing, bringing the total committed equity investment to $1.25 billion. The rental venture will have access to Lennar’s pipeline of over 300,000 owned and controlled homesites.
The bottom line: single-family continues to draw institutional interest
Single-family rentals have been hot. Lennar’s announcement follows Blackstone (NYSE: BX) signaling that it’s getting back into the single-family investment arena. In late 2020, the company announced that it would be leading a $300 million syndicate to invest in Tricon Residential, an owner-operator of over 30,000 single-family and multifamily properties.
Blackstone also acquired single-family home design firm Interior Logic Group Holdings for $1.6 billion. Is Blackstone leaning in on Lennar’s territory? Or is it the other way around?
JLL (NYSE: JLL) is also in on single-family rentals. Just a few weeks ago, the commercial real estate firm invested in single-family rental investment platform and proptech startup Roofstock.