Homebuilder Lennar Corp. plans to spin off its LENx investment unit later this year to become a “pure homebuilding company,” citing volatility in the valuations of its public holdings, including real estate tech startups Opendoor, Blend Labs and Sonder.
In its latest quarterly earnings report, Lennar confirmed Wednesday that it took a $395 million paper loss on its investments in six publicly traded tech companies in the quarter ended Feb. 28.
In addition to reigning iBuyer champion Opendoor and cloud banking software developer Blend Labs, LENx also reported unrealized losses on its investments in short-term rental manager Sonder, home insurance startup Hippo, solar and energy services provider Sunnova, and self-guided tour provider SmartRent . While LENx is also a key stakeholder in publicly traded digital property, custody and settlement provider Doma, it uses a different accounting method to estimate its value.
Lennar Corp. Unrealized Technology Investment Loss
Source: Lennar Corp. earnings report for the quarter ended February 28, 2022.
Through LENx, Lennar has invested in a portfolio of two dozen companies focused on three “core verticals” – multifamily, single-family rentals and land strategies. Most of LENx’s holdings, including Divvy Homes and Notarize, have yet to go public.
On a conference call with investment analysts, Lennar executive chairman Stuart Miller said homebuilders still love LENx-invested companies that are “trying to reshape every part of our company and industry” and help Lennar cut costs.
“We’ve made significant strategic investments in a variety of new technology companies that are working to reshape our company and every part of our industry,” Miller said. “Some are disruptors, some are enhancers. All of these are at the heart of the future and our The existence of the core operating platform.”
But Miller said Lennar is working with regulators to spin off LENx as a separate entity because when the companies it invests in go public, they can create volatility in the homebuilder’s earnings results, “leading to some confusion on the upside and downside. .”
Miller noted that in the first quarter of 2021, Lennar reported $470 million in paper gains in tech companies it invested in.
“These are non-monetary and non-operating gains and losses, and they don’t really reflect the state of the housing market or the company’s operating performance in that market,” Miller said.
That said, Lennar chooses to “not sell ownership of these companies just because they go public. Instead, we are strategically involved in these businesses because — in their business, and because of our commitment to the future of these businesses and our Enthusiasm for the LENx strategy.”
Spinning out LENx into a separate company, which Lennar currently calls “SpinCo,” will allow Lennar to focus on “becoming a pure-play residential construction company,” Miller said.
Miller said Lennar had filed a confidential Form 10 registration statement with the Securities and Exchange Commission in February, received its first round of comments from the SEC, and initiated the process for SpinCo to list on the New York Stock Exchange.
He said Lennar “can control the timing of the spin,” but “we’re pushing back our expectations for actual execution to the third or fourth quarter of this year, given the volatility in the capital markets and the work that is still being done.”
Title insurer First American Financial has also been investing in next-generation real estate technology, investing in 16 venture capital firms, including digital title and settlement services provider Endpoint, as well as Lev, Offerpad, Orchard, Pacaso, Ribbon, Side Inc., and sundae.
Email Matt Carter