Lennar to shed stake in housing venture
Lennar Corp. said Tuesday that it would sell a majority stake in a joint venture that owns one of the largest residential developments in Los Angeles County, the latest example of a home builder selling land to cope with a bruising housing slowdown.
But the fact that buyers are snapping up such land is a sign of improving confidence in Southern California’s home-building market, analysts said.
Miami-based Lennar, the nation’s third-largest home builder ranked by unit sales, had no trouble finding a new partner in its venture, which involves the proposed 20,000-home, 15,000-acre Newhall Ranch community in Santa Clarita Valley.
“We are excited to be investing in such prime property in Los Angeles, a market that we have favored for its long-term growth prospects,” said Victor B. MacFarlane, founder and managing principal of MacFarlane Partners.
The San Francisco-based real estate investment firm is buying a 62% stake in the venture for $1.3 billion, with backing from the California Public Employees’ Retirement System, the nation’s biggest public pension fund.
By selling a large chunk of the project, Lennar and its current partner, LNR Property Corp., will each get $660 million in cash, and Lennar will be able to report a profit of $500 million on its investment while lessening future risk.
The deal, expected to close next month, brings in a new partner with “strong financial resources and expertise,” according to a joint statement by Lennar Chief Executive Stuart Miller and LNR CEO Jeffrey Krasnoff.
Meanwhile, Lennar will retain a 19% interest and collect management fees from the venture and will continue to have rights of first option to purchase land owned by the partnership.
The transaction underscores the increasingly prevalent view among industry insiders that the current decline in the Southland’s housing market could be short-lived.
“It’s good that there’s activity like this because it provides some hope that the market is getting better,” said G.U. Krueger, an economist with IHP Capital Partners, an Irvine real estate investment firm that also works with CalPERS.
Other signs have emerged in recent weeks that the region’s housing market isn’t deteriorating as quickly as it had been. Fewer homes are on the market today than during the early fall. Builders have been winnowing down their supply of unsold homes while holding off on constructing new ones.
What’s more, the economy continues to create jobs and interest rates have stabilized, which many expect will help stimulate demand in the months ahead.
These factors are spurring a growing number of developers and others to look for land in Southern California. But many investors are having a hard time finding the right parcels to acquire, experts say.
“There’s a lot of snooping around, but they want to make sure they are not overpaying,” Krueger said.
Landowners, particularly major builders, have been reluctant to lower land prices even as they cut prices on their homes. That is helping builders unload unsold homes but is also pushing down home prices regionwide, giving pause to potential land buyers.
Landowners “are not getting offers from us they want to see,” said a land acquisition specialist with a mid-size builder who declined to be named because he’s involved in land negotiations. His company, which builds homes throughout Southern California, is “in an active buying mode” but is reluctant to purchase property that doesn’t pencil out at current housing prices.
Yet, the lack of low-priced property also suggests that landowners haven’t gotten desperate enough to sell at a discount, another sign that the Southern California market is holding up better than other markets.
“The big land holders haven’t gotten to that point yet, when someone else can step in and get a good deal,” said Michel Faris, who specializes in the Santa Clarita and Antelope valleys at land broker Park Place Partners.
Lennar looks to be getting a good deal by selling the stake in its Newhall Ranch project, which it acquired when it purchased Newhall Land & Farming Co. in early 2004 for $990 million. The home builder now co-owns the project with LNR Property, a Lennar spinoff.
Newhall Ranch, which spans west of Magic Mountain to the Ventura County line, is envisioned as one of the last master-planned communities in Los Angeles County.
It not only will include thousands of homes but also schools, roads, commercial development and other infrastructure that will take the next two decades to build out.
Plans for the first 1,400-home phase of the proposed community are slated to go before the county Regional Planning Commission this month.
In the last few months, a number of big home builders have forecast lowered earnings and have pruned their land holdings or taken losses on land deposits to help balance their books.
Los Angeles-based KB Home, for instance, sold its majority stake in a 5,000-home development in Palmdale last fall.
Lennar also said Tuesday that it expected to post its first quarterly loss in a decade when it reports earnings this month, largely because of land-related write-downs.
Lennar derived nearly a quarter of its business from California in 2006.
*
