Darren Richman, CEO of Millrose Properties, Inc. (NYSE: MRP), joined the REIT Report podcast to discuss the land banking business model and how the REIT works with major home builders to improve capital efficiency.
Millrose was spun off from home builder Lennar Corp. in February, allowing Lennar to focus on the consumer-facing aspect of its business by transferring the land development side to Millrose. The REIT works with Lennar and 11 other homebuilders.
“The more modern form of land banking is about capital efficiency, where a builder is looking to clarify their own business model, looking to separate the opco (operating company) from the propco (property company),” he said.
Richman noted that land banking is well-established in concept and is similar to asset-separation trends seen in hospitality and retail. Millrose collaborates with major homebuilders that identify entitled land; Millrose buys and holds the land, leasing it back through option agreements. Builders pay option fees while developing the property and later repurchase it at predetermined prices, giving Millrose stable, predictable revenue.
The company’s agreements—option, development, and pooling contracts—ensure builders remain committed, and none have defaulted to date across 250,000 home sites, according to Richman.
Since its public debut, the market has become more comfortable with the stability and consistency of the Millrose business model, Richman said. “Now the conversation is shifting as we speak with investors about where should we trade on yield, what yield do investors demand relative to the risk of the business model,” he added.