A subsidiary of homebuilder Lennar Corp. completed its first closing of a real estate fund to invest in distressed real estate assets.
Rialto Capital closed the fund with $300 million in initial equity commitments, including $75 million from the Miami-based homebuilder.
The fund will extend Lennar’s distressed real estate and mortgage investments for the next three years.
While the core operations of homebuilders have lagged in recent years, Lennar has seen some success in purchasing real estate owned properties and distressed mortgage debt through the Rialto subsidiary.
Deals in 2010 include a $3.05 billion portfolio from the Federal Deposit Insurance Corp. The February deal included a combined 5,500 mortgages from two pools of notes—including distressed residential and commercial real estate assets—culled from 22 failed banks.
A more recent deal from early October was a series of transactions to purchase a combined $740 million in distressed commercial and residential real estate assets from three undisclosed financial institutions. When the deal was announced, Lennar said the acquired assets included 397 loans with a total unpaid principal balance of approximately $529 million and 306 REO properties with an appraised value of approximately $211 million.
Lennar said the acquisition was purchased at a discount and paid for with a combination of cash and senior unsecured financing provided by one of the selling financial institutions.
The Rialto subsidiary’s activities in distressed asset investment netted Lennar $7.7 million in net operating earnings during its fiscal year third quarter that ended on August 31. The company posted FY3Q10 earnings of $30 million, or $0.16 per share, compared to a net loss of $171.6 million, $0.97 per share, in FY3Q09.
