Rialto Capital Management has held a first close on its Rialto Real Estate Fund, garnering $300 million in equity commitments.
The Miami-based investment firm said in a statement it had secured a $75 million commitment from its parent, US homebuilder Lennar Corporation. According to people familiar with the matter, the fund is targeting $750 million.
The vehicle is focused on distressed equity and debt investments in the US and in February acquired the largest portfolio from the US banking regulator, the Federal Deposit Insurance Corporation, to date. Paying $244 million for a 40 percent stake in two portfolios, Rialto bought 5,166 residential acquisition, construction and development (ADC) loans, and 345 commercial ADC loans. The loans were from 22 failed banks in 10 states, including Georgia, Florida, California and Texas.
In helping former LNR Property Corporation chief executive Jeffrey Krasnoff establish Rialto in 2007, Lennar Corporation president and chief executive officer Stuart Miller said the homebuilder was returning to its roots of investing in distressed debt deals. Miller said in February: “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”.
At the end of September, Lennar paid $310 million for 397 primarily non-performing and commercial ADC loans and 306 real estate owned (REO) properties from three large financial institutions. Lennar said in its third quarter earnings report, the assets were valued at about $740 million, with the deal financed with a $125 million five-year senior unsecured note provided by one of the sellers. Rialto will manage and workout the loan and asset pools.
Lennar and Rialto have also invested $71.2 million in AllianceBernstein’s Public-Private Investment Program (PPIP) fund, which has raised $1.2 billion from private investors to buy real estate loans and securities through the US government's stimulus programme. The equity haul will be matched by the government, and backed by an additional $2.3 billion of debt financing.
To date, the AllianceBerstein PPIP fund has acquired roughly $4 billion of non-agency residential mortgage-backed securities and commercial mortgage-backed securities. Rialto acts as sub-advisor to the vehicle.