Lennar Corp., one of the nation’s largest homebuilders, expects its losses to continue in the coming months in the multifamily business it shelved plans to spin off last year as a surge of new apartments raises concerns about overbuilding across the country.
Miami-based Lennar reported an operating loss of about $8 million for its multifamily business in the second quarter compared to a profit of nearly $1 million in the same quarter last year. For the first half of the year, Lennar’s multifamily business had a $30 million operating loss, compared to a profit of $6 million the same time last year.
Lennar said in December it would hold off on spinning off its multifamily business, called Quarterra, because of market uncertainties. The difficulties that Lennar faces in that property type reflect the added apartments creating a financial headwind to the nation’s multifamily developers.
Rental rates have moderated at Lennar’s apartment properties as “many markets have become somewhat overbuilt and there is additional inventory being completed and coming online,” Stuart Miller, Lennar’s executive chairman, said on the company’s conference call Thursday. “This inventory will complete over the next year and a half. While rents won’t likely drop significantly, they are not likely to grow very much either.”
Lennar is expecting to report a loss of about $10 million from its multifamily business in the third quarter, Diane Bessette, Lennar’s chief financial officer, said on the call.
Lennar didn’t immediately respond to inquiries from CoStar News about its multifamily losses.
But Lennar is bullish on its homebuilding division, saying customers have adjusted and accepted high interest rates. In addition, the supply chain chaos has normalized, inventories have remained low, and the supply of housing across the country is very limited, Miller said.
Lennar’s shares closed at a five-year high on Thursday afternoon of $119.81 on optimism about its homebuilding business.
“The strong demand for housing that had been curtailed by sticker shock and affordability challenges has returned, while the housing market adjusted prices, incentives, including rate buy-downs, and production costs in order to enable customers to afford needed shelter,” Miller said.
Still, Lennar reported revenue from home sales decreased 4% in the second quarter to $7.6 billion from $8 billion last year, primarily because of lower prices of homes sales.
Lennar’s average sale price of a home delivered in the quarter was $449,000, compared to $483,000 in the second quarter last year.