Now rebranded as LMC, Lennar Multifamily Communities is strengthening and bridging success with the single- family portion of its business. Ideas on capital raising, acquisitions and marketing are stemming from the experience and long-term success of the company’s original business.
Mutlifamily Executive asked Lee Busse, senior development manager, LMC Mountain States/Southwest division, what the strategy is for 2017. Here he shares how they arrived where they are and where they are headed.
Q: Lennar has had some great success in the west/southwest. Where do you see that headed in the next couple of years?
A: In the Mountain States/Southwest our focus has been on executing LMC’s strategy of building a development pipeline consisting of well-located suburban and urban infill properties proximate to major transportation and employment corridors. Since 2012, we’ve assembled a development pipeline consisting of over 3,500 apartment homes in Colorado and Arizona. While the past few years have been very robust in terms of sourcing development opportunities, over the next couple of years our focus will be on executing on our current pipeline. Plus, we will also continue to pursue land opportunities on a more selective basis.
Q: What are the biggest challenges to land acquisition?
A: One of the challenges that was discussed during the MFE Leadership Summit is the pace of rent growth being at unsustainable levels over the past few years and how that relates to construction costs. We’ve seen near double digit rent growth in the Mountain States/Southwest markets over the past few years and while construction costs have also increased, rent growth seemed to offset those costs increases. Deals that we are underwriting today are more of a challenge to pencil down as rent growth has pulled back to more sustainable/normal levels; however, construction costs being the laggard, have continue to increase at a significant pace. We’ve been fortunate in that we brought construction in house, which has resulted in more construction cost transparency and more confidence in our underwriting of new opportunities.
Another challenge we face has to do with what we’ve referred to as apartment fatigue expressed by some municipalities. Early on in the cycle, cities welcomed all types of development and even offered incentives, such as fee waivers and reimbursements, to help apartment developers get deals done. There are some cities in our markets today that are fatigued by the amount of multifamily development that is occurring and some have even gone so far as to increase fees and put moratoriums on apartment development. Fortunately, this is isolated in our markets and sophisticated developers have worked to get ahead of this by partnering with land owners early on to secure entitlements.
Q: What are the best capital avenues?
A: We’ve been fortunate that our LMC leadership team had the foresight early on and recognized the need to formulate a programmatic approach to capital raising for the 75+ communities that we are working on across the country. Back in October of 2016, we closed a $2.2B LMV venture fund to provide the equity for Class A development opportunities in our 25 target markets. Along with the capital raise, we’ve leveraged the success of our parent company Lennar’s banking relationships and capital raising platform, and have joint ventured with institutional partners on one-off development opportunities.
Q: Lennar just went through a re-branding – how is that impacting the product that you are developing?
A: The re-branding effort has been very successful and credit again goes to our leadership team. They listened to the early response that we were encountering in many markets where our partners and end users were somewhat confused when they would see Lennar’s name on apartments after Lennar has built such a solid reputation in the for-sale residential market.
The re-branding effort has focused on our name changing to LMC, a Lennar Company. The results have been tremendous as our brand and new name have helped us distinguish our product offering into apartments while also integrating the Lennar standards of quality and excellent customer service. We’ve also begun a cross marketing effort where residents of our LMC communities, who are looking to transition to home ownership, receive unique incentives towards the purchase of a Lennar home.
Q: What are you excited about in 2017?
A: In the Mountain States/Southwest, we’ve spent the last four to five years assembling and executing on a development pipeline consisting of 11 properties in Colorado and Arizona. This year we will see six of those communities deliver first homes to the market and another community reach stabilization. We’ve put forth a lot of time and effort into planning these communities; everything from developing a first-in-class interior finish specification package to customized amenities and leasing experience initiates that will provide value to the end user. I’m most excited to unveil the communities and witness the satisfaction and feedback that we receive from our future residents.
