Lennar to create tech investments in real estate

Homebuilder Lennar Corp. plans to spin off its LENx investment division later this year to become a “pure-play home-building company”, citing volatility in valuations of publicly traded companies it has a stake in, including tech startups real estate Opendoor, Blend Labs and Sonder.

In its latest quarterly earnings report, Lennar on Wednesday acknowledged $395 million in paper losses in the quarter ending Feb. 28 due to its investments in six publicly traded technology companies.

In addition to defending champion iBuyer Opendoor and cloud banking software developer Blend Labs, LENx reported unrealized losses on its investments in short-term rental manager Sonder, home insurance startup Hippo , solar and energy service provider Sunnova and self-guided tour provider SmartRent. Although LENx is also a major player in Doma, a publicly traded digital security, escrow and closeout provider, it uses a different accounting method to estimate its value.

Lennar Corp. unrealized losses on technology investments

Source: Lennar Corp Earnings Report. for the quarter ending February 28, 2022.

Through LENx, Lennar has invested in a portfolio of two dozen companies, focusing on three “core verticals” – multi-family, single-family for rent, and land strategies. Most of the companies in which LENx has a stake, including Divvy Homes and Notarize, have not yet been made public.

On a call with investment analysts, Lennar executive chairman Stuart Miller said the homebuilder continues to like the companies LENx has invested in, which “are working to reshape various parts of our business and our industry”, and help Lennar reduce costs.

“We have made significant strategic investments in various new technology companies that are working to reshape various parts of our business and our industry,” Miller said. “Some are disruptors and some are enablers. All are critical to the future of, as well as the presence of, our core operating platform.

But Miller said Lennar was working with regulators to make LENx an independent entity because when the companies he invests in go public, they create volatility in the homebuilder’s earnings results that “causes some confusion for the public.” both up and down”.

Miller noted that in the first quarter of 2021, Lennar reported $470 million in paper earnings on technology companies he invested in.

“These are non-cash, non-operating profits and losses, and they really don’t reflect the state of the housing market, or the company’s operating performance in that market,” Miller said.

That said, Lennar chooses “not to sell ownership of these companies just because they go public. Instead, we’re strategically engaged in the businesses because — in the businesses of those businesses and because we’re very excited about the future of those businesses and our LENx strategy.

Spinning off LENx as a separate business, which Lennar calls “SpinCo” for now, will allow Lennar to focus on “becoming a pure-play residential construction company,” Miller said.

Miller said Lennar filed a confidential registration statement on Form 10 with the Securities and Exchange Commission in February, received an initial round of comments from the SEC, and initiated SpinCo’s listing process on the stock exchange. from New York.

He said Lennar “can control the timing of the rotation”, but that, “given the turmoil in the financial markets and the work that is still ongoing, we are pushing our expectations for actual execution to the third or fourth quarter of this year.”

Title insurer First American Financial has also made big bets on next-generation proptech investments, with investments in 16 venture-backed companies, including digital securities and settlement services provider Endpoint, as well as Lev , Offerpad, Orchard, Pacaso, Ribbon, Side Inc., and Sundae.

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