Lennar Buys $3.05bn of Distressed Real Estate Loans
Homebuilder Lennar Corp. (LEN) said late Wednesday it bought ownership of two loan portfolios with a combined unpaid balance of $3.05bn. The portfolios hold 5,500 distressed residential and commercial real estate loans from 22 failed bank receiverships, according to a press statement. Lennar said it "indirectly" acquired 40% managing member interests in limited liability companies formed by the Federal Deposit Insurance Corp. (FDIC) to hold the seized assets. "Acquiring and working out distressed real estate loans was a large and extremely profitable part of our business during the last major real estate down cycle in the early 1990s," said Lennar president and CEO Stuart Miller. "We are pleased to return to this business and honored to partner with the FDIC to manage, work through and add value to these portfolios of real estate loans." Miller added: "As we have noted on our quarterly conference calls, we have been carefully preparing to invest in this space for the last two years. Our strong cash position and proven track record in this area enables us to capitalize on this market cycle and create long-term value for our shareholders. We expect these transactions will be accretive to 2010 earnings." In January, Lennar reported net earnings of $35.6m, $0.19 per share, for its fiscal year fourth quarter that ended Nov. 30 and said it will receive a tax refund of $320m as a result of legislation that temporarily allowed companies to recoup losses from taxes paid in profitable years. A Lennar subsidiary, Rialto Capital Advisors, will conduct day-to-day management and workout of the portfolios. Lennar is paying $243m - including a contribution from Rialto up to $5m - for the 40% interest. The FDIC often creates limited liability companies to hold loans seized from failed banks. It's a way for the FDIC to spin off assets - similar to the way in October the FDIC sold an equity interest in a transaction bearing $4.5bn of assets from failed Corus Bank, to Starwood Capital Group. The FDIC recently confirmed they are also considering securitization of loans from failed banks. An FDIC source confirmed to HousingWire the department is also looking to sell rights to a mortgage-servicing portfolio previously held by Amtrust Bank. FDIC could not disclose the portfolio’s worth, but indicated a sale is desired in Q210. Write to Diana Golobay. Disclosure: The author holds no relevant investments.