Home Real Estate Walker Webcast: Lennar’s Stuart Miller Discusses the Housing Market, Innovation and Corporate Culture
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Walker Webcast: Lennar’s Stuart Miller Discusses the Housing Market, Innovation and Corporate Culture

Bloomberg’s recent article “The U.S. Housing Market Has Become an Impossible Mess” addressed the apparent problems of the housing market. These range from affordability to higher mortgage rates to a lack of existing homes on the market.

This was also the article Willy Walker used to kickstart the Nov. 8, 2023, episode of the Walker Webcast featuring guest Stuart Miller.

Miller, Executive Chairman and Co-CEO of homebuilder Lennar Corp., acknowledged that housing affordability is an issue. He also told Walker & Dunlop Chairman and CEO Walker that housing supply is another problem. These two issues feed off one another.

“We have 8% mortgages right now,” Miller said. “Higher interest rates make affordability more difficult. This pushes down on the supply.”

But what the Bloomberg article didn’t mention – and what Miller pointed out – is that homebuilders are attempting to bridge the affordability gap through adjustable rate and 30-year fixed-rate mortgage buydowns. This is leading to new home construction.

“If you look at housing starts,” Miller explained, “we’re running at about 1.3 million. That’s a lot stronger than the 600,000 or so in the aftermath of the Great Recession. But it’s still traditionally shy of what’s needed.”

Blaming the supply shortage on the idea that sellers are hanging on to homes because those homes have lower mortgage rates is somewhat disingenuous. “When they sell, they’re going to look for another home,” Miller said. “They’re adding to the demand. This is a zero-sum game, meaning the shortage has to be filled by new production.”

Miller said that multifamily supply is “at a run rate of about 500,000 above trend, and that’s still coming through the system right now.” But this might not last.

“Interest rates have definitely changed the dynamics in terms of debt and cap rate, relative to the value proposition of building new construction in the apartment world,” Miller commented. Meanwhile, developers and owners in the single-family-for-rent sector are experiencing similar issues.

The upshot is that inventory isn’t necessarily shrinking. More is being added, but “we’ve got to make up the production of for-rent and for-sale,” Miller said. “That means that the longer-term prospects for our business are good as long as we remain innovative and sensitive to affordability.”

How Homebuilders Innovate

Another topic for discussion during the hour-long webcast was innovation.

Miller explained that technology is impacting every business. “The businesses that don’t adapt might find themselves at a disadvantage . . . and left behind,” he said.

Lennar invested in technology companies years ago while building out its technology platform in its quest to not be left behind. One example Miller used is the Lennar Machine. Miller described this as a “configuration of a digital marketing funnel, internet new-home consultant, sales engagement program and dynamic pricing model kind of wrapped together.” The Lennar Machine was developed to find the right product at the right price for customers. “That is the kind of stepping-stone technology that in our world will lead to machine learning and AI, which are catchwords today,” Miller said.

He also touched on the importance of data. By processing and confirming data authenticity, use cases can be set up for more advanced learning mechanisms. This will “help us not just sell homes but build homes maximize efficiencies, bring down costs and build a better value for our customer and a better bottom line for our shareholders,” Miller said.

The Cultural Foundation

Walker and Miller also spent time discussing corporate culture and the process of mergers and acquisitions.  

Miller referred to Lennar’s U.S. Home Corp. acquisition in 2000. U.S. Home was more design-studio-oriented then, while Lennar operated under the “everything included” mantra. The two companies operated under these different philosophies and marketing programs for several years.

“We were able to look side-by-side at just how valuable the everything-included model was in supporting a production-oriented program that reduced costs and built value for the customer,” Miller said. As a result, the entire company followed the “everything’s included” philosophy of home building. So when Lennar acquired CalAtlantic in 2017, it, too, moved from a design-studio orientation to an everything-included focus.

From Miller’s viewpoint, Lennar’s corporate culture success resides in a 100% team orientation. The company has transitioned to an open floor plan model. The focus is on the company’s strength of spirit. And company meetings start with readings of “The Little Red Hen.”

“We do some peculiar things,” Miller acknowledged. “But it’s all about how we bring people together.” In Miller’s mind, the overall goal is commonality and what he called “the uniquely Lennar way of handling situations” when employees are involved with their day-to-day jobs.

Ultimately, “culture brings those answers together and keeps people thinking about who we are and what we stand for,” Miller said. He explained that the company has stood for integrity, quality, value and customer orientation for decades. “These are the elements that make us Lennar,” Miller said, “That’s what we want each of our associates tied together with.”

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