MIAMI—The ink has dried on the Lennar-CalAtlantic merger. Two of the nation's largest homebuilders are now poised to make a new mark on the industry.
As a result of the merger, Lennar will own or control approximately 250,000 homesites and will actively selling homes in approximately 1,300 residential communities in 21 states. In its most recent fiscal year, Lennar delivered 29,394 single-family homes and CalAtlantic delivered 14,602 single-family homes. Both companies also provide mortgage financing, title insurance and closing services to buyers of homes they build and to others.
Clearly, there are benefits and challenges. GlobeSt.com sat down with Saul Ewing Arnstein & Lehr Attorney Charles Brecker to discuss the significance in part two of this exclusive interview. You can still read part one: What Does CalAtlantic-Lennar Merger Mean for Homebuilding Industry?
GlobeSt.com: How will Lennar benefit from acquiring CalAtlantic Group?
Brecker: By swallowing CalAtlantic, Lennar will be able to solidify its influence in certain markets where they compete with CalAtlantic and other national homebuilders in regions such as South Florida. The merger will not only reduce competition but also command greater discounts from its contractors and suppliers, given the heft of its combined operations, which last year jointly closed the sale of more than 40,000 housing units, according to Builder magazine.
Homebuilder mergers often make sense because the acquiring company can obtain land and land bank platted lots and raw parcels at a cost, which is far less than current market values of similar properties. This is compelling for Lennar in competitive land markets such as Florida, Texas and California.
GlobeSt.com: What challenges are ahead for Lennar and CalAtlantic Group?
Brecker: With any type of merger, making sure the two companies management styles and culture are aligned is always a challenge. Lennar has effectively recently absorbed other large homebuilders, including US Homes,Newhall Land and WCI Communities, and they have successfully and seamlessly blended styles.
Another challenge Lennar will face is the absorption of substantial debt—reportedly $3.6 billion—at a time when many real estate markets have been described as over-heated and over-supplied and the Fed has been pushing the pedal on the interest rate increases. That is a detriment for homebuilders as they compete with rental apartment developers.
The proposed marriage also arrives at the precipice of Congress's overhaul of the US Tax Code, including the potential elimination or material changes to one's entitlement to home mortgage interest deductions, changes in passive income and carried interest rules, and a myriad of other tax code changes, which could have a crippling effect on homebuilders. Time will tell if Lennar's strategy is brilliant or one which caused great disruption in providing new housing for homebuyers.
How did Lennar's WCI grab impact South Florida's housing market? Here's one take.
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