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Financial Instruments and Fair Value Disclosures
6 Months Ended
May 31, 2023
Fair Value Disclosures [Abstract]  
Financial Instruments and Fair Value Disclosures Financial Instruments and Fair Value Disclosures
The following table presents the carrying amounts and estimated fair values of financial instruments held or issued by the Company at May 31, 2023 and November 30, 2022, using available market information and what the Company believes to be appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies might have a material effect on the estimated fair value amounts. The table excludes cash and cash equivalents, restricted cash, receivables, net and accounts payable, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.
May 31, 2023November 30, 2022
(In thousands)Fair Value HierarchyCarrying AmountFair ValueCarrying AmountFair Value
ASSETS
Financial Services:
Loans held-for-investment, netLevel 3$36,717 36,717 45,636 45,647 
Investments held-to-maturityLevel 3141,360 141,767 143,251 143,208 
LIABILITIES
Homebuilding senior notes and other debts payable, netLevel 2$3,852,258 3,813,686 4,047,294 3,993,242 
Financial Services notes and other debts payable, netLevel 21,157,040 1,157,682 2,135,093 2,135,797 
Multifamily notes payable, netLevel 216,912 16,912 16,749 16,749 
The following methods and assumptions are used by the Company in estimating fair values:
Financial Services—The fair values above are based on quoted market prices, if available. The fair values for instruments that do not have quoted market prices are estimated by the Company on the basis of discounted cash flows or other financial information. For notes and other debts payable, the fair values approximate their carrying value due to variable interest pricing terms and the short-term nature of the majority of the borrowings.
Homebuilding—For senior notes and other debts payable, the fair value of fixed-rate borrowings is primarily based on quoted market prices and the fair value of variable-rate borrowings is based on expected future cash flows calculated using current market forward rates.
Multifamily—For notes payable, the fair values approximate their carrying value due to variable interest pricing terms and the short-term nature of the borrowings.
Fair Value Measurements:
GAAP provides a framework for measuring fair value, expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:
Level 1: Fair value determined based on quoted prices in active markets for identical assets.
Level 2: Fair value determined using significant other observable inputs.
Level 3: Fair value determined using significant unobservable inputs.
The Company’s financial instruments measured at fair value on a recurring basis are summarized below:
Fair Value HierarchyFair Value at
(In thousands)May 31, 2023November 30, 2022
Financial Services Assets:
Residential loans held-for-saleLevel 2$1,152,526 1,750,712 
LMF Commercial loans held-for-saleLevel 322,754 25,599 
Mortgage servicing rightsLevel 33,398 3,463 
Forward optionsLevel 17,261 9,473 
Lennar Other Assets:
Investments in equity securitiesLevel 1$227,548 212,981 
Investments available-for-saleLevel 336,906 35,482 
Residential and LMF Commercial loans held-for-sale in the table above include:
May 31, 2023November 30, 2022
(In thousands)Aggregate Principal BalanceChange in Fair ValueAggregate Principal BalanceChange in Fair Value
Residential loans held-for-sale$1,159,857 (7,331)1,734,480 16,233 
LMF Commercial loans held-for-sale
22,765 (11)24,000 1,599 
Financial Services residential loans held-for-sale - Fair value is based on independent quoted market prices, where available, or the prices for other mortgage whole loans with similar characteristics. The Company recognizes the fair value of its rights to service a mortgage loan as revenue upon entering into an interest rate lock loan commitment with a borrower. The fair value of these are included in Financial Services’ loans held-for-sale as of May 31, 2023 and November 30, 2022. Fair value of servicing rights is determined based on actual sales of servicing rights on loans with similar characteristics.
LMF Commercial loans held-for-sale - The fair value of commercial loans held-for-sale is calculated from model-based techniques that use discounted cash flow assumptions and the Company’s own estimates of CMBS spreads, market interest rate movements and the underlying loan credit quality. The details and methods of the calculation are unchanged from the fair value disclosure in the Company's Notes to the Financial Statements section in its Annual Report on Form 10-K for the year ended November 30, 2022. These methods use unobservable inputs in estimating a discount rate that is used to assign a value to each loan. While the cash payments on the loans are contractual, the discount rate used and assumptions regarding the relative size of each class in the CMBS capital structure can significantly impact the valuation. Therefore, the estimates used could differ materially from the fair value determined when the loans are sold to a securitization trust.
Mortgage servicing rights - Financial Services records mortgage servicing rights when it sells loans on a servicing-retained basis or through the acquisition or assumption of the right to service a financial asset. The fair value of the mortgage servicing rights is calculated using third-party valuations. The key assumptions, which are generally unobservable inputs, used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and delinquency rates and are noted below:
As of May 31, 2023As of November 30, 2022
Unobservable inputs
Mortgage prepayment rate8%8%
Discount rate13%13%
Delinquency rate 9%7%
Forward options - Fair value of forward options is based on independent quoted market prices for similar financial instruments. The fair value of these are included in Financial Services' other assets and the Company recognizes the changes in the fair value of the premium paid as Financial Services' Revenue.
Lennar Other investments in equity securities - The fair value of investments in equity securities was calculated based on independent quoted market prices. The Company’s investments in equity securities were recorded at fair value with all changes in fair value recorded to Lennar Other unrealized gain (loss) from technology investments on the Company’s condensed consolidated statements of operations and comprehensive income.
Lennar Other investments available-for-sale - The fair value of investments available-for-sale is calculated from model-based techniques that use discounted cash flow assumptions and the Company’s own estimates of CMBS spreads, market interest rate movements and the underlying loan credit quality. Loan values are calculated by allocating the change in value of an assumed CMBS capital structure to each loan. The value of an assumed CMBS capital structure is calculated, generally, by discounting the cash flows associated with each CMBS class at market interest rates and at the Company’s own estimate of CMBS spreads.
The changes in fair values for Level 1 and Level 2 financial instruments measured on a recurring basis are shown below by financial instrument and financial statement line item:
Three Months EndedSix Months Ended
May 31,May 31,
(In thousands)2023202220232022
Changes in fair value included in Financial Services revenues:
Loans held-for-sale$7,899 350 (23,563)(27,037)
Mortgage loan commitments13,783 12,758 (35,061)26,555 
Forward contracts(18,807)(18,480)72,702 (8,490)
Forward options(100)— (952)— 
Changes in fair value included in Lennar Other unrealized gains (losses) from technology investments:
Investments in equity securities$25,497 (77,965)1,543 (473,135)
Changes in fair value included in other comprehensive income, net of tax:
Lennar Other investments available-for-sale$573 62 1,424 804 
Interest on Financial Services loans held-for-sale and LMF Commercial loans held-for-sale measured at fair value is calculated based on the interest rate of the loans and recorded as revenues in the Financial Services’ statement of operations.
The following table sets forth the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements in the Company's Financial Services segment:
Three Months Ended
May 31,
20232022
(In thousands)Mortgage servicing rightsLMF Commercial loans held-for-saleMortgage servicing rightsLMF Commercial loans held-for-sale
Beginning balance$3,450 25,835 2,793 85,795 
Purchases/loan originations69 84,590 99 143,650 
Sales/loan originations sold, including those not settled— (88,102)— (145,385)
Disposals/settlements(80)— (106)— 
Changes in fair value (1)(41)434 435 145 
Interest and principal paydowns— (3)— — 
Ending balance$3,398 22,754 3,221 84,205 
Six Months Ended
May 31,
20232022
(In thousands)Mortgage servicing rightsLMF Commercial loans held-for-saleMortgage servicing rightsLMF Commercial loans held-for-sale
Beginning balance$3,463 25,599 2,492 68 
Purchases/loan originations120 164,070 181 408,495 
Sales/loan originations sold, including those not settled— (165,302)— (323,467)
Disposals/settlements(143)— (265)— 
Changes in fair value (1)(42)(11)813 (445)
Interest and principal paydowns— (1,602)— (446)
Ending balance$3,398 22,754 3,221 84,205 
(1)Changes in fair value for LMF Commercial loans held-for-sale and Financial Services mortgage servicing rights are included in Financial Services' revenues.
The Company’s assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs. The fair values included in the table below represent only those assets whose carrying values were adjusted to fair value during the respective periods disclosed. The assets measured at fair value on a nonrecurring basis are summarized below:
Three Months Ended
May 31,
20232022
(In thousands)Fair Value
Hierarchy
Carrying ValueFair ValueTotal Losses, Net (1)Carrying ValueFair ValueTotal Losses, Net (1)
Non-financial assets - Homebuilding:
Finished homes and construction in progress (2)Level 3$126,680 108,073 (18,607)18,665 17,200 (1,465)
Land and land under development (2)Level 33,249 561 (2,688)8,785 7,149 (1,636)
Investments in unconsolidated entities (3)Level 375,769 37,792 (37,977)— — — 
Six Months Ended
May 31,
20232022
(In thousands)Fair Value
Hierarchy
Carrying ValueFair ValueTotal Losses, Net (1)Carrying ValueFair ValueTotal Losses, Net (1)
Non-financial assets - Homebuilding:
Finished homes and construction in progress (2)Level 3$183,816 158,902 (24,914)34,023 31,041 (2,982)
Land and land under development (2)Level 342,866 23,704 (19,162)29,538 17,909 (11,629)
Investments in unconsolidated entities (3)Level 378,834 37,792 (41,042)— — — 
(1)Represents losses due to valuation adjustments and deposit and pre-acquisition write-offs recorded during the respective periods.
(2)Valuation adjustments for finished homes and construction in progress, and land and land under development were included in Homebuilding costs and expenses. During the three and six months ended May 31, 2023, total losses, net, for land and land underdevelopment included $2.7 million and $17.1 million, respectively, of deposit and pre-acquisition cost write-offs.
(3)Valuation adjustments related to investments in unconsolidated entities were included in Homebuilding other income (expense), net in the Company's condensed consolidated statements of operations and comprehensive income for the three and six months ended May 31, 2023.
Finished homes and construction in progress are included within inventories. Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. The Company disclosed its accounting policy related to inventories and its review for indicators of impairment in the Summary of Significant Accounting Policies in its Annual Report on Form 10-K for the year ended November 30, 2022.
The Company estimates the fair value of inventory evaluated for impairment based on market conditions and assumptions made by management at the time the inventory is evaluated, which may differ materially from actual results if market conditions or assumptions change. For example, changes in market conditions and other specific developments or changes in assumptions may cause the Company to re-evaluate its strategy regarding previously impaired inventory, as well as inventory not currently impaired but for which indicators of impairment may arise if market deterioration occurs, and certain other assets that could result in further valuation adjustments and/or additional write-offs of option deposits and pre-acquisition costs due to abandonment of those options contracts.
On a quarterly basis, the Company reviews its active communities for indicators of potential impairments. The table below summarizes communities reviewed for indicators of impairment and communities with valuation adjustments recorded:
Communities with valuation adjustments
At or for the Six Months Ended# of active communities# of communities with potential indicator of impairment# of communities
Fair Value
(in thousands)
Valuation Adjustments
(in thousands)
May 31, 20231,256345$42,408 $12,247 
May 31, 20221,2186— — 
The table below summarizes the most significant unobservable inputs used in the Company's discounted cash flow model to determine the fair value of its communities for which the Company recorded valuation adjustments:
Six Months Ended
May 31,
20232022
Unobservable inputsRange
Average selling price$371,000663,000635,000
Absorption rate per quarter (homes)62611
Discount rate20%20%
The Company disclosed its accounting policy related to investments in unconsolidated entities and its review for indicators of impairment for the long-lived assets of an unconsolidated entity and the decline in the fair value of an investment below the carrying value in the Summary of Significant Accounting Policies in its Annual Report on Form 10-K for the year ended November 30, 2022.
The Company evaluates if a decrease in the fair value of an investment below the carrying value is other-than-temporary. This evaluation includes certain critical assumptions made by management: (1) projected future distributions from the unconsolidated entities, (2) discount rates applied to the future distributions and (3) various other factors, which include age of the venture, relationships with the other partners and banks, general economic market conditions, land status and liquidity needs of the unconsolidated entity. The Company generally estimates the fair value of an investment in an unconsolidated entity by using a cash flow analysis for estimated future net distributions from an unconsolidated entity, subject to the perceived risks associated with the unconsolidated entity’s cash flow streams. During the three and six months ended May 31, 2023, the Company estimated the fair value of an investment in an unconsolidated entity using a cash flow analysis with a 15% discount rate and concluded that the investment had an other-than-temporary impairment of $36.8 million included in Homebuilding other income (expense), net in the Company's condensed consolidated statements of operations and comprehensive income.