Fitch: Rialto poised for spin-off, sale or JV

The investment arm of Lennar could follow a similar path to another investment manager previously owned by its parent company.

Lennar, the parent company of Rialto Capital Management, is exploring strategic alternatives for the debt-focused investment manager, the company said last week.

Miami-based Lennar founded Rialto in 2007, and now, the firm is seeking to return to its residential roots. Lennar has hired Wells Fargo Securities and Deutsche Bank Securities to advise on “strategic alternatives,” Stuart Miller, Lennar’s chief executive, said in the firm’s first-quarter earnings statement last week. The firm could not be reached for further comment.

Among the possible routes for Rialto are a spin-off as a separate entity in which Lennar retains a stake; a joint venture with another investor; ; a joint venture with another investor; or a full sale of Rialto, Robert Rulla, a director at Fitch Ratings, told PERE. Lennar has experience with all those options. Last April, for example, Five Point Holdings, a California land developer backed by Lennar, issued its initial public offering. Lennar retains a 40 percent stake in the company, Rulla said.

This is not the first time that Lennar has considered strategic options for an investment management platform, either, as the firm took its debt-focused subsidiary LNR Property public in 1997. In 2004, a subsidiary of Cerberus Capital Management reportedly bought the company in a deal valued at $2 billion. In 2013, Starwood Capital Group agreed to acquire LNR from Cerberus and other owners for $1 billion on behalf of Starwood Distressed Opportunity Fund IX, PERE previously reported.

“Lennar had some experience with this type of investment management operation. Given some of the distress in terms of real estate assets in 2008, 2009, they thought this would be a good venture to go back into,” Rulla said. “Lennar has said over the past year or two that they’re going to focus on core homebuilding operations, so they’re looking to alternatives for Rialto.”

At this stage, he said it was too early to determine the most likely outcome for Rialto.

The manager most recently raised Rialto Real Estate Fund III, a 2015-vintage fund that corralled $1.9 billion, including a $140 million general partner co-investment, according to Lennar’s 2017 annual report. In total, Rialto has raised $4.5 billion across six private equity vehicles, per the report.

Since inception, the firm has acquired over $6 billion in distressed loans, according to its website.