By Mark Mueller - 7/2/2007
Orange County Business Journal Staff
Lennar Corp. says it has no intention of backing out of its Orange County projects despite a tough national housing market that’s causing the homebuilder to retrench elsewhere.
But prospective buyers for the country’s second-largest homebuilder now may find a smaller number of faucets to choose from at the company’s local sites. Cutting down on upgrades and other features are moves Miami-based Lennar is making to ride out the slow housing market.
“We’re still on track in Orange County. We’re still moving forward,” said Emile Haddad, Lennar’s chief investment officer.
The company, whose day to day operations are largely run out of its Aliso Viejo of-fice by Haddad and Chief Op-erating Officer Jon Jaffe, plans more than 15,000 homes in OC in the next decade or so. It was the biggest homebuilder in the county last year.
Last week, Lennar posted quarterly earnings that failed to meet already lowered expectations.
It reported a loss of $244 million for the three months ended May 31, compared to a profit of $324.7 million a year earlier. Analysts were expecting a profit of about $8 million.
Revenue fell just as sharply in the quarter, to $2.9 billion from $4.6 billion a year earlier.
The company has been lowering prices for homes in an effort to cut down on its holdings and generate more sales. Homes in its Western division are selling at an average price of $434,000, 8% lower than a year ago. That eroded profit margins in the recent quarter, in part causing the worse-than-expected results.
Lennar’s cut the number of homes it has started building by 57% from a year ago. The company also slimmed down its land holdings some 30% to 243,000 sites.
Land still on the books includes “long-term strategic” holdings such as the former El Toro Marine base in Irvine and Newhall Ranch in Los Angeles County.
OC is one of the company’s least affected markets in terms of project downsizing, though Lennar has seen slow sales at its projects under way in Irvine and Tustin.
“There have been no changes at all,” Haddad said. “When you look at the market in Orange County, and projects like El Toro, these are communities that we’re going to build at over a long term.”
At the former base, Lennar still is “getting our ducks in order,” in terms of zoning and city approvals for its estimated 9,500-home project there, he said.
How many homes Lennar plans to develop there still hasn’t been finalized.
The plan is to roll out a more thorough development plan for the Great Park in a few months, while early demolition work of the base’s runway continues.
In Anaheim, the company’s groundwork at the Platinum Triangle continues. It expects to start building homes there early next year, first with low- and mid-rise condominium buildings and later high-rises.
Other developers at the Platinum Triangle will have completed close to 2,000 homes and apartments by the time Lennar begins its homebuilding efforts in earnest there. The builder has plans for some 3,000 homes at the former industrial area next to Angel Stadium of Anaheim.
“We will have the benefit of studying the projects (completed) ahead of us, we’ll see what product has been received better,” Haddad said.
Lennar’s other big home project here, Central Park West in Irvine near John Wayne Airport, is well under way. The 4,000-home project is the area’s first big mixed-use development.
Both townhouses and two condo towers are moving ahead at the 43-acre site. Interest from prospective buyers at the project has been encouraging, though sales have lagged expectations, officials said.
Lennar, like other builders, continues to grapple with a nationwide slow housing market that has no end in sight.
“As we look to our third quarter and the remainder of 2007, we continue to see weak, and perhaps deteriorating, market conditions,” Chief Executive Stuart Miller said in a conference call last week.
Lennar counts a market value of about $6 billion at recent check. So far this year, the company’s shares are down some 25%. That’s in line with the rest of the industry. The housing sector is down 24% for the year, according to the Dow Jones U.S. Home Construction Index.
Other builders in the region also are in a slump. Shares of Irvine’s Standard Pacific Corp. are down about 30% this year, while Los Angeles-based KB Home’s shares are off about 20%.
Lennar’s goal for the remainder of this year is limiting losses, Miller said.
The company has cut its workforce by about 20% in the past year. It also continues to aggressively re-bid construction costs with contractors, a policy the company has been undertaking for about a year.
In terms of home features, it has reduced the number of floor plans it offers at sites and limited choices of add-ons and other features—it has reduced the number of kitchen faucet choices it offers at its homes down to four now, Miller said.
Haddad said Lennar’s efforts have pushed down its debt-to-capital levels, which are among the best in the homebuilding sector.
“A strong balance sheet is what’s going to carry you forward,” Haddad said.
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