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| December 10, 2009 |
By: Paola Iuspa-Abbott |
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ennar Homes, one of the largest home-builders in the nation, is betting the market for new houses in South Florida is about to pick up.
At least that appears to be its thinking, as the Miami-based company over the past month has been quietly buying hundreds of home sites ready for construction in Homestead.
“They are looking at replenishing their inventory and taking advantage of [discounted] prices to get ready for a moderate upturn in [the housing market] next year,” said Robert Rulla, director of the New York-based Fitch Ratings. He analyzes and rates the top publicly traded home-builders in the country.
The home-builder helped create a residential boom in Homestead earlier in the decade, building many of the nearly 10,000 homes that went up in the South Miami-Dade city earlier in the decade.
Lennar’s projects contributed to a housing glut that help fuel the ongoing foreclosure crisis.
As its business stalled, Lennar reduced its land holdings. Now, with the housing market showing signs of stabilizing, Lennar is planning for the future, several real estate experts said.
For the past three months, Lennar has bought outright or taken title through deed transfers hundreds of sites ready for development in several subdivisions, mostly east of the Florida’s Turnpike extension and north of Southwest 328th Street.
Through different deals, the publicly traded company paid more than $13 million for nearly 750 home sites, according to Miami-Dade County property records.
Lennar executives declined comment.
The acquisition points to a shift in strategy. For the past three years, Lennar and other builders drastically reduced their land holdings.
Lennar’s national inventory of home sites fell from 345,000 at the peak of the housing market in 2006 to 109,000 in the third quarter of 2009, according to Morningstar.
In December 2007, Lennar sold about 11,000 home sites across the country to a joint venture it created with Morgan Stanley. Lennar received $525 million for the portfolio, which had a book value of about $1.3 billion.
Lennar has been concentrating on conserving cash and cutting operating costs, while slashing home prices and beefing up incentives to sell slow-moving inventory. When the recession hit, Lennar was stuck with hundreds of unsold homes in partially built subdivisions in Homestead and elsewhere across South Florida.
Michael Maxwell, a home-builder and real estate consultant, sees Lennar’s move as a sign that the housing market is recovering.
“It tells you that we passed the bottom of the market, and builders are starting to step up, because it will take some time for all of this to get under way again,” said Maxwell, managing partner of Maxwell + Partners in Coral Gables.
Lennar is recovering from more than two years of declining revenues.
Revenues from home sales dropped 36 percent in the third quarter of 2009, to $635.3 million from $995.7 million in the same period of 2008, according to a filing with the Security and Exchange Commission.
In the third quarter ended Aug. 31, Lennar reported a loss of $171.6 million, up from a loss of $89 million in the same quarter of 2008. It ended the quarter with $1.3 billion in cash.
The Deals
On Nov. 16, a company called Homestead Lots 2008, led by investors Arnaud Karsenti and Robert Suris, sold Lennar 488 home sites in the Oasis and Renaissance subdivisions in Homestead for $8.3 million, or about $17,000 a parcel, according to public records.
“Home-builders are learning that the market does clear at a certain affordability — and in this case, building slightly smaller homes and less expensive to be attractive to the market,” said Karsenti. He declined to comment on the transaction.
Homestead Lots acquired the home sites a year ago from Miami-based Caribe Homes. Caribe, a family-owned builder, had planned to develop the subdivisions, but the housing meltdown ended its plans and forced it to sell for an undisclosed amount.
In a separate deal, Caribe Homes on Nov. 30 sold Lennar 222 home sites for $4 million, or $18,018 a lot, in Baywinds, according to public records.
On Nov. 16, Caribe sold Lennar 40 home sites for $799,800 in a partially developed subdivision at Oasis.
In another transaction, Caribe transferred title of nearly 600 lots at other Baywinds subdivisions to Lennar in September, according to public records.
At the beginning of the construction boom in 2003, Caribe and Lennar joined forces to develop Baywinds, which was to have nearly 1,000 single-family homes and townhouses.
They built some of the subdivisions, but construction has stalled.
Caribe executives didn’t respond to requests for comment about the deals.
Lots, Not Raw Land
Lennar’s joint venture partners are often small, privately owned developers that don’t have the capital needed to continue to develop or build homes on the lots, Rulla said.
“So it gives builders like Lennar the opportunity to buy the land [from their partners] at a discount and put it on their books,” he said.
In the past, builders sought to buy raw land to hold on to until the demand was there to develop it.
But now Lennar and most national home-builders are looking for parcels ready to build on, Rulla said.
“Now, they want to buy it, build on it, turn it away as quickly as possible so that they can reap the benefit of the profits from those landholdings,” he said.
Banking undeveloped land can become a financial burden, he said. Buying finished lots saves builders the cost of obtaining permits and building the infrastructure, Karsenti said.
His investment group owns more home sites in South Miami-Dade, and he says he’s often approached by national builders looking for land.
“They are being very selective in the properties they are choosing, the quality of the community and the location,” Karsenti said. “They are buying product that has already been improved, to get better deals.”
Others Following Suit
Lennar isn’t alone in its forward-looking strategy, said Michael Cannon, executive director of Integra Realty Resources in Miami.
“That’s why Starwood wants to buy Tousa’s [home sites] to resell it to builders,” he said. Starwood Land Ventures, an affiliate of Starwood Capital Group Global of Greenwich, Conn., bid $61 million on Dec. 2 for Tousa’s Florida assets.
Hollywood-based Tousa, which filed for Chapter 11 bankruptcy protection in January 2008, is seeking offers for 3,500 home sites statewide.
“It is a signal,” said Cannon. “If Lennar is doing it, and Starwood is doing it … it is encouraging.”
Cannon said home values will likely begin to rise by the end of the second quarter of 2010, when demand for homes will catch up with the supply of properties on the market.
“We are just going into the equilibrium period, in which demand and supply are on a level playing field,” he said.
Paola Iuspa-Abbott can be reached at (305) 347-6657.
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