Lennar Corp. and Toll Brothers Inc., two of the nation’s biggest home builders, are making a push into apartment construction despite doubts about the sustainability of the multifamily development boom.
Lennar said in July that it led the formation a $1.1 billion investment fund to build and own apartments in as many as 25 large U.S. markets. Lennar will build apartments for the fund, which is supported by sovereign wealth funds and institutional investors.
Toll Brothers plans a national expansion of its apartment development division, a three-year-old business that so far has built apartments in the Boston-to-Washington, D.C., corridor. Toll Brothers also plans to increase its equity investment in its apartment division to as much as $300 million.
As young adults remain renters longer than previous generations did, apartment vacancy rates are down to 4.2 percent, the lowest level in 15 years, real estate market research firm Reis Inc. reported.
The Pew Research Center reports that 48 percent of people 18 to 34 are living with an adult other than a spouse, up from 44 percent in 2007. The Pew Research data indicate that many young adults living with a parent, other family members or roommates may soon want their own rental residence.
Lennar’s president Rick Beckwitt told the Wall Street Journal that the fundamentals of the rental market are compelling: “You have 3 million-plus young adults living at home who want housing, and most of them will rent.”
Beckwitt also said “it’s too soon to tell if there has been a fundamental shift in homeownership rates. What we do know today is there is demand on both side,” for rental and owner-occupied housing.
The seller, Jim Ellis, told The Real Deal in an interview last week that he sold the land about a month ago to Lennar after holding it for 10 years and obtaining development approvals for the site. at 120 Northeast Fourth Street.
Ellis, who owns a company called Ellis Diversified, said Miami-based Lennar paid $12.5 million for the vacant 2.2-acre site and that he worked on the transaction primarily with Lennar’s Atlanta-based rental business unit.
“Lennar came in and it was a good offer, good terms, so it made sense and we let this one go,” Ellis said told TRD. “They’ve been very aggressive with the project … I expect that they’re going to come out of the ground as soon as possible.” [Wall Street Journal] — Mike Seemuth