Lennar Corp. (LEN) has acquired $740 million in distressed real-estate assets from three large financial institutions, in what the homebuilder says is the first major private-sector purchase of such loans.
The company has been increasingly getting into the investment business through its Rialto segment, mirroring moves by real-estate investors looking to buy beaten-down assets at what they hope are discounted prices.
Rialto focuses on distressed loans and real estate. It will oversee day-to-day management and workout of the 397 mostly nonperforming loans on residential and commercial properties; the loans have an unpaid balance of $529 million. Nonperforming loans are in danger of going bad. Also being bought are 306 bank-owned properties with an appraised value of $211 million.
Lennar said it paid for the assets at a discount and were financed with cash and financing by one of the three selling banks, which were unnamed. The assets are in 17 cents, primarily in the Mid-Atlantic and Southeast.
The business contributed $7.7 million to Lennar's fiscal third-quarter profit of $30 million, helping it return to the black. Lennar said the latest purchase is expected to add to the company's earnings for the year starting Dec. 1.
Rialto partnered with the Federal Deposit Insurance Corp. in February, paying $243 million for a 40% stake in a portfolio of 5,500 loans from nearly two dozen failed banks. Lennar on Friday said its expects such investment opportunities to increase as the FDIC and banks work through their distressed assets.
So far, only luxury builder Toll Bros. (TOL) has come close to mimicking Lennar's strategy: Earlier this year, Toll Bros. joined forces with private equity firm Oaktree Capital Management LP and others to snap up $1.7 billion in distressed loans once held by AmTrust Bank.
-By Tess Stynes, Dow Jones Newswires; 212-416-2481; Tess.Stynes@dowjones.com;