Two Major Home Builders Bullish on Apartments

Toll Brothers and Lennar, two of the largest US home builders, are digging deeper into apartment development:

Upscale builder Toll Brothers Inc. has said it intends to expand its apartment-development division, a three-year-old venture that so far has focused on the Boston-to-Washington, D.C., corridor, to build projects across the U.S. In all, Toll plans to double its equity investment in the division to up to $300 million.

Rival Lennar Corp. in July said it has recruited sovereign-wealth funds and institutional investors to create a $1.1 billion fund for building and holding apartments in up to 25 major U.S. markets. Lennar, which will build the fund’s apartments, intends to expand the fund’s equity to $2 billion within a year, executives said.

The apartment market has been a boon for developers and investors so far this decade. Vacancies are hovering near 15-year lows at 4.2%, according to market-research firm Reis Inc., as young adults stay in rentals longer than earlier generations did. Meanwhile, apartment asking rents have steadily risen to a 15-year-high of $1,194 a month in 79 U.S. markets in the second quarter, according to Reis.

“Today we see great fundamentals in the business,” said Rick Beckwitt, Lennar’s president, in an interview. “You have 3 million-plus young adults living at home who want housing, and most of them will rent.

Other researchers quoted in the article are less optimistic about how long the apartment party might go on, but the fundamentals continue to look strong and it appears that the party isn’t set to end any time in the immediate future.