• by Thom Forbes , October 31, 2017

Miami-based Lennar Corp. has put together a package to acquire Arlington, Va.-based CalAtlantic Group, creating a McMansion of a home-building company — the largest homebuilder in the U.S. with a footprint in 21 states. 

“The $9.3 billion deal — announced as a merger, though Lennar management would take the lead — would give the combined company a top-three position in 24 of the largest metropolitan statistical areas (MSA) in the U.S. Together, the two companies have 2017 revenues of $17 billion and a total market capitalization of $18 billion,” reports Rene Rodriquez for the Miami Herald.

It “is the first major merger in the U.S. housing sector in more than two years, points out Arunima Banerjee for Reuters. “The equity value of the deal is $5.66 billion, based on CalAtlantic's 110.2 million outstanding shares as of July 26, according to Thomson Reuters data.”

The deal also includes Lennar assuming $3.6 billion of CalAtlantic debt. The transaction is subject to approval by Lennar and CalAtlantic stockholders and is expected to close in the first quarter of 2018.

“The proposal marks the largest merger of home builders since the financial crisis, a milestone for the recovery of an industry that was hard hit by the housing collapse last decade but has contributed significantly to U.S. growth in recent years,” write Chris Kirkham and Laura Kusisto for the Wall Street Journal.

“On a conference call Monday, Lennar executives pointed out that the two companies are already competing in many of the same markets. With more scale, they said they can lower costs by negotiating better deals with construction crews and suppliers,” Kirkham and Kusisto report. “It should be no surprise that the more you buy, the less you pay,” Lennar president Rick Beckwitt said.

Indeed, “Lennar and CalAtlantic anticipate reaping $250 million in annual cost savings and paying down debt obligations. But the deal will not alter a basic problem: The construction of new homes in the United States lags below historical averages,” observe Chad Bray and Matthew Goldstein in the New York Times.

“A decade after the big housing bust dealt a blow to many smaller home builders, the industry’s largest firms continue to grapple with higher regulatory expenses that make building homes — especially starter homes — too costly, some housing-finance experts said. The situation confounds some people, given the pressing need for affordable housing for young families,” they continue.

On that note, Lennar and its subsidiary Eagle Home Mortgage last month “unveiled its Student Loan Debt Mortgage Program to help free up student loan borrowers' budgets so they can afford a home,” Allesandra Lanza reports for U.S.News.com. “Under the program, Lennar will direct up to 3% of the home purchase price to repay up to $13,000 of the borrower's student loans for those purchasing a brand new home from the company.”

The news in Texas is that “Fort Worth's D.R. Horton will lose its status as nation's top homebuilder” following the merger, as the hed over Steve Brown’s piece for the Dallas Morning News  puts it. And the new combo will be a “solid No. 2” in the Dallas-Ft. Worth market.

“Lennar's proposed acquisition of CalAtlantic is a big deal,” Ted Wilson, who is with Dallas-based Residential Strategies, tells Brown. “The combined total of 2,107 (new home starts) would give them a 6.53% share of market in D-FW … behind D.R. Horton with 4,887 starts.”

“The most recent data from the Commerce Department last week showed that nationwide sales of new homes leaped 18.9% in September to a seasonally adjusted annual rate of 667,000, the highest level since October 2007,” the Associated Press reports in a story published in the Los Angeles Times.

“The gains came from every region including the South which saw a nearly 26% boost as people are replacing homes destroyed or damaged in Hurricanes Harvey and Irma. With unemployment rates extraordinarily low, economists believe housing demand will increase,” it continues, and home builders are “optimistic about demand.”

But is it all a bubble, just like a decade ago?

“A majority of Americans believe the real estate market will crash in the next two years,” Kimberly Amadeo writes for The Balance. “… But there are nine differences between the 2017 housing market and the 2007 market. For example, only 5% of mortgages were subprime. In 2005, subprime made up 20% of all mortgages. These differences make a housing market collapse less likely.”