Lennar agrees to sell part of Rialto to Stone Point for $340M

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Lennar Corp. is selling a portion of its Rialto business to Stone Point Capital for $340 million, adding to Stone Point's holdings in the real estate and financial industries.

The investment and asset management arm of the Rialto business will join Stone Point and continue to be led by its current management team, according to a company press release.

Lennar will hold onto Rialto's mortgage finance business and retain Rialto's fund investments, which totaled $294 million as of Aug. 31. It also will retain carried interests in various Rialto funds, and investments in legacy Rialto balance sheet assets.

The builder has been exploring "strategic alternatives" for its Rialto real estate investment business unit since early this year. The unit has invested in distressed commercial and residential assets, has been involved in multifamily workouts, and has originated and securitized commercial mortgages.

Rialto's operating earnings improved in the third quarter, but its revenue was lower during the fiscal period.

During 3Q18, Rialto's operating earnings totaled $10.7 million, or $9.4 million with an add-back of $1.2 million in net loss attributable to noncontrolling interests. In 3Q17, Rialto's operating earnings totaled $3.2 million, or an operating loss of $3.2 million with an add-back of a $6.4 million net loss attributable to noncontrolling interests.

Rialto generated almost $50 million in revenue in the third quarter, compared to almost $58 million a year ago.

"Lennar's recent move to offload this business is expected to bode well for the company," according to a recent Zacks Equity Research report. The company's stock price was up slightly immediately after the release of the news.

Stone Point is a private equity firm. Its other holdings of commercial and residential financial services firms include Situs, a real estate services company.

Situs owns MountainView Financial Solutions, a specialist in assets that include hard-to-value securities and mortgage servicing rights. Situs also owns The Collingwood Group, a team of industry consultants who previously held housing- and real estate-related posts in Washington, D.C.

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