Sales: $666.9 million
Stock Exchanges: New York Boston Philadelphia
SICs: 6719 Holding Companies, Nec; 1521 Single-Family
Housing Construction; 1542 Nonresidential Construction,
Nec; 2431 Millwork; 6552 Subdividers & Developers, Nec
Florida’s largest home builder and one of the largest residential builders in the country, Lennar Corporation began as a Miami-based residential home-building company, then later diversified into real estate investments and financial services to mitigate its dependence on a cyclical housing construction market. By the 1990s, Lennar was a full-service real estate company principally involved in designing, building, and selling all types of residential housing, but primarily focused on the market for first-time home buyers, or those homes selling for under $100,000. In addition to the company’s considerable presence in the Florida home-building market, Lennar maintained a presence in Texas and Arizona as well. Lennar’s financial services and investment businesses, operating as Lennar Financial Services, Inc., and the company’s Investment Division, respectively, were national in scope and key contributors to the company’s revenue total. Through its financial services subsidiary, Lennar originated or serviced mortgage loans in 48 states, provided title services, and operated a mortgage loan brokerage business, while the company’s asset management business purchased and managed commercial real estate, including shopping centers, office buildings, warehouses, apartment properties, and mobile home parks.
Lennar’s origins date to 1954, when Arnold P. Rosen, a home builder who had been involved in constructing residential homes in the Miami area for roughly ten years, founded F & R Builders, Inc. In 1956, shortly after the creation of F & R, an individual who would figure prominently Lennar’s development moved to Florida, intent on utilizing his land development and marketing skills. His name was Leonard Miller, a 23 year-old entrepreneur with $10,000 and 42 empty lots in Dade County, Florida.
Not long after his arrival in Florida, Miller participated in several joint ventures with Arnold Rosen and his fledgling construction company, adding his land management and marketing skills to Rosen’s proven technical ability to build low-and medium-priced single-family homes. Soon, the business relationship between Rosen and Miller became a more permanent one, more than just an alliance for particular projects; Miller joined F & R Builders, devoting his energy to making the company a leader in the competitive Miami market.
By the mid-1960s, the partnership of Miller and Rosen had proved to be a boon to F & R Builders’ growth, enabling the company to become the largest home builder in the greater Miami area in roughly a decade. As F & R Builders continued to expand, capturing a significant share of the low- and medium-price residential market, a market that included first-time home buyers and a growing number of new Florida residents looking to purchase retirement homes, Miller and Rosen decided to make their growing concern a publicly owned company. For the express intention of achieving this objective, Lennar Corporation was formed in 1969, with F & R Builders constituting its primary asset.
Lennar completed its underwriting and became a public company two years later, in 1971, when stock in the company was sold over the counter. It was listed on the American Exchange until 1972, when it began selling on the New York Stock Exchange. Using the funds from its stock sale, Lennar began to broaden its area of operation. Under the leadership of Miller, the company’s chairman and president, and Rosen, its executive vice president, Lennar, still operating essentially as F & R Builders, expanded beyond Miami and the surrounding Dade County region. This expansion began in earnest in 1973, when Lennar entered the Phoenix, Arizona, market with the acquisition of Mastercraft Homes, Inc., for approximately $2 million, and Womack Development Company, both established home builders in the greater Phoenix area. Shortly thereafter, Lennar established housing operations in the midwestern United States by purchasing Bert L. Smokler & Company, based in Detroit, Michigan, and Dreyfus Interstate Development Corp., based in Minneapolis-St. Paul, Minnesota.
High inflation and a recession during the mid-1970s struck serious blows to the residential housing industry, which suffered from, among other problems, over-built inventories. Lennar was not immune to the negative conditions afflicting many home builders and incurred its share of losses; however, the downturn in housing construction starts did provide the company’s management time to integrate the recent acquisitions into Lennar’s operations and further develop the company’s business philosophy. An intrinsic objective of this philosophy, created in part during F & R Builders’ rise during the 1950s and strikingly germane during the downswing now restraining the company’s growth, was the need for Lennar to develop a core earnings base unrelated to the frequently volatile housing construction market. As the company planned for the future, this objective became paramount, eventually leading to Lennar’s diversification into other types of businesses and helping to ensure the company’s solvency during future construction downturns.
By 1977 the U.S. housing industry had fully recovered from the difficulties hampering its growth during the mid-1970s, and so had Lennar, recording $83 million in sales for the year, up from $55 million registered the previous year. The following year, in 1978, revenues soared 60 percent, reaching $133 million, and earnings doubled to over $7 million. Florida still represented Lennar’s primary market, accounting for 66 percent of its total housing deliveries, whereas its Midwest and Arizona markets accounted for 15 percent and 19 percent, respectively. By this time, in the late 1970s, the company was responding to changing consumer housing needs by constructing townhouses and condominiums. In addition, it was diversifying into other business activities as part of its plan to develop a core earnings base exclusive of the home-building market. Initially, Lennar gained entry into these other business sectors as a reward for its financially conservative and prudent management policies, which earned the respect of several lending institutions in Florida. These lending institutions asked Lennar to assume management responsibility for problem projects in their portfolios, leading, in many cases, to the acquisition of such projects by Lennar and signaling the beginning of the company’s involvement in asset management.
In 1981, Lennar diversified further, entering the home mortgage business and originating what would later become Lennar Financial Services, Inc. The number of housing starts initiated by the company fell in 1981 and 1982, and a commensurate decline its earnings followed in the second year of the downturn. That year Lennar entered a joint property-development venture with Guaranty Properties Ltd., a subsidiary of Toronto-based Traders Group Ltd., to develop a 1,830-acre property in Orlando, Florida. Also in 1982, the company purchased H. Miller & Sons, Inc., for $24 million.
Lennar was able to assume the role of acquirer during such depressed economic periods partly because of its dependable management practices, but also because the addition of its asset management and home mortgage businesses had enabled a refinement of the company’s long-standing conservative operating philosophy. Typically, during peak construction periods, home-building companies funneled their profits toward greater growth, buying additional land and constructing more homes, essentially attempting to capitalize on an expanding market. When the demand for home-building subsided, however, and the market plummeted into one of its capricious tailspins, many of these home builders found themselves over-extended and unable to survive the downturn. Lennar’s management, on the other hand, approached robust periods of market growth differently, avoiding the impulse to expand rapidly when demand seemed insatiable. Instead, the company attempted to generate as much profit from each construction project as possible, then use the profit to lower the company’s debt. When the home-building market once again slowed, Lennar was well positioned to reap the rewards of a depressed market—cheap and available land—at a time when a majority of its competitors were struggling to meet costs with their surplus land inventories.
This strategy served Lennar well as it progressed through the 1980s and into the 1990s, enabling it to increase its market share in its areas of home building. Moreover, the company’s additional investments in nonconstruction related businesses bolstered its revenue-generating ability during recessive financial periods, providing a hedge against the cyclically of its primary business activity. In 1987, Lennar reorganized its financial services operations into Lennar Financial Services, Inc., the product of its entry into the home mortgage business six years earlier. By this time Lennar had withdrawn from the Midwest market and was considering an entrance into the Texas market, a location more consistent with its presence in other Sun Belt states. Still, however, the company’s primary focus was on Florida, where Lennar controlled a significant portion of the home-building market. Its position in Florida was strengthened further with the acquisition of the home-building assets and operations of Richmond American Homes of Florida, Inc., in 1988 for approximately $18 million, and, in January 1989, with the purchase of M.D.C. for a similar price.
As Lennar entered the 1990s, the dynamics of the housing market in Florida were changing, engendered by rising construction prices, an economy that was beginning to show signs of deteriorating, and by changing demographics. Combined, these forces put an end to the rapid pace of construction experienced during the late 1980s, which was financed largely by the soon-to-fail savings and loan industry. The importance of several market niches increased, particularly the market for low-and medium-priced homes within reach of more pragmatic and cost-conscious consumers. Because Lennar had specialized in this market throughout its history, the company was positioned to capitalize on the changing business environment. However, a greater test of Lennar’s operating strategy and financial resources was coming, as a nationwide recession gained momentum, and city, state, and regional economies soured.
The early 1990s were disastrous years for many home builders as orders for new construction evaporated, sending a considerable number of Lennar’s competitors out of business or significantly reducing their ability to operate successfully. Lennar, however, posted its highest earnings gain in its history in 1991, recording a 56 percent leap to $8 million, despite a drop in revenues from $350.8 million in 1990 to $325.7 million. The company’s sound operating philosophy, most apparent in a poor economic climate, had underpinned its profits as construction lagged and enabled it to become an acquirer at a time when other home builders were struggling to survive.
Lennar entered the Texas market in 1991, after four years of experimentation, and began construction in suburban Dallas. By the following year, the company had purchased 28,000 lots, primarily located in Florida, and opened a 1,400-home retirement complex in Phoenix. As part of this period of expansion, Lennar purchased the portfolio of a failed savings and loan institution, AmeriFirst Bank, formerly the largest in Florida, from the Resolution Trust Corporation for an estimated $450 million. Purchased in partnership with The Morgan Stanley Real Estate Fund, the AmeriFirst portfolio gave Lennar more than 1,100 commercial and residential properties and loans, including thousands of acres already approved for residential construction.
In 1993, as the U.S. economy began to recover, Lennar’s revenues leaped 55 percent over the total recorded in 1992, reaching $666.9 million. Earnings shot up as well, rising from $29.1 million in 1992 to 1993’s total of $52.5 million, an 80 percent increase. By this time, the company had augmented its presence in Texas, adding Houston’s housing market to its already established Dallas market. Together, the three states in which Lennar operated home-building operations generated $514 million in revenues, with Florida accounting for 80 percent of the total and Arizona and Texas accounting for 13 percent and 7 percent, respectively.
The company’s subsidiary, Lennar Financial Services, originated $1.3 billion in new home mortgages during the year, bringing the value of the company’s loan servicing portfolio to $3.4 billion. An equally strong performance was demonstrated by Lennar’s Investment Division, largely because of two enormous acquisitions, the AmeriFirst purchase and an interest in a portfolio acquired in partnership with Westinghouse Electric Corporation and an affiliate of Lehman Brothers. These two acquisitions, concluded in the two years prior to 1993, gave Lennar an interest in real estate management assets valued at more than $4 billion, complementing an already solid combination of business interests that provided an enviable foundation for the company’s future.
Lennar Homes, Inc.; Lennar Homes of Arizona, Inc.; Lennar Homes of Texas, Inc.; Lennar Financial Services, Inc.; Universal American Mortgage Company; Am-
eriStar Financial Services, Inc.; Universal Title Insurors, Inc.; Lennar Funding Corp.; Loan Funding, Inc.; Lennar Commercial Properties, Inc.; Lennar Management Corp.; Universal American Realty Corp.
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—Jeffrey L. Covell