Dive Brief:

• In a deal that closed last week, New York City-based global investment firm KKR purchased 5,200 units from Irving, Texas-based developer Quarterra Multifamily, a subsidiary of Miami-based home builder Lennar, for about $2.1 billion. The Wall Street Journal first reported the story and KKR confirmed with a press release.
• The portfolio includes 18 newly built mid- and high-rise properties in California, Washington, Florida, Texas, Georgia, North Carolina, Colorado and New Jersey. Nashville, Tennessee-based Carter-Haston, San Diego-based MG Properties and New York City-based Dalan Real Estate will operate the assets.
• On Lennar Corp’s December 2023 earnings call, executive chairman and co-CEO Stuart Miller said the firm was exploring the sale of its roughly 11,000-unit apartment portfolio. At the time, Bloomberg Law reported that the company was open to splitting up the portfolio, which could be worth as much as $4.5 billion, into smaller pools. Lennar plans to sell additional buildings, according to The Wall Street Journal.

Dive Insight:

Just as Lennar telegraphed its intentions to sell the Quarterra portfolio, KKR, in a report the company published in April, hinted that it could be an active buyer of apartments. 

In the report, Ralph Rosenberg, partner and global head of real estate at KKR, wrote that apartment performance usually remains stable through economic cycles. “People always need places to live and spending on shelter tends not to fluctuate as much as more discretionary spending,” he said.

Multifamily faces several challenges, including falling property values, high debt loads, a pullback in available debt capital, a loan maturity wall and new supply over the next two years, according to Rosenberg. While the sector is in a deleveraging cycle now, those issues should fade.

“The influx of new supply is likely to taper off after 2025, at which point we are optimistic about rent growth given the structural shortage of housing and unfavorable cost dynamics for new construction in the United States,” Rosenberg said in the report. 

With favorable long-term dynamics in the multifamily business, acquisitions make a lot of sense, according to Rosenberg. “As owners come under more pressure to sell assets, we see an exciting opportunity coming to buy high-quality properties below replacement cost while achieving attractive long-term yields,” he said.

Lennar’s motivation

In July 2022, Lennar rebranded its vertically integrated multifamily apartment builder, developer and asset manager LMC as Quarterra Multifamily. At the time, Lennar said it would spin off the business later that year. 

The rebranding was the first step in positioning Quarterra as an independent, New York Stock Exchange–listed alternative asset manager, president Todd Farrell said in a 2022 press release.

But then, in its 2022 fourth-quarter conference call, the company announced that it had halted plans to spin off Quarterra by the end of the year due to unfavorable market conditions.

”We believe that we have a very high-end public company waiting and almost ready to enter the public arena,” Miller said on that earnings call. “But we’re going to postpone for the time being and wait for the right timing.”

Lennar launched its multifamily subsidiary in 2011, and it quickly became one of the top apartment producers in the country. As recently as 2023, it ranked as the No. 7 apartment developer in the U.S. with 5,224 units, according to the National Multifamily Housing Council.

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