Rialto Capital Management, the Miami-based private equity real estate firm, has amassed $520 million in a second close of its latest fund, Rialto Real Estate Fund II. Investors have been told that the second close, along with further circled commitments, means Rialto has secured in excess of 60 percent of its stated $950 million target.
Rilato, which is owned by publicly-traded housebuilder Lennar Corporation, is following up on its debut fund, which closed in 2011 on $700 million. Including recycled capital, approximately $970 million of equity has been invested from that fund in 60 transactions. It is understood that this first fund already has distributed $281 million back to its investors, representing 40 percent of total commitments, just 26 months after its first capital call.
Given that Fund I is fully invested, Rialto already is investing out of Fund II. Sources said $75 million has been put to work in two distressed debt portfolios, two subordinate CMBS investments and one distressed asset. It has another six transactions in the works, which are expected to require over $100 million of equity.
Rialto is led by founder and chief executive officer Jeffrey Krasnoff. The president of the firm is Jay Mantz, who joined in 2011 having served as global co-head of Morgan Stanley's Merchant Bank Group, which includes Morgan Stanley Real Estate Investing funds, the Morgan Stanley Infrastructure Fund and other private equity funds, from 2007 to 2009. Vice chairman is Eric Feder, who is responsible for overseeing the origination of nonperforming loans.
The roots of Rialto lie in LNR Property , which was established by Krasnoff and Stuart Miller in 1990, and was an early pioneer in the commercial mortgage-backed securities industry. LNR was spun out by Lennar as a separate public company in 1996 and was taken private in 2004 for $4.4 billion. Rialto then was founded by Krasnoff, again with the backing of Lennar, in 2007 to take advantage of the turmoil in the residential market.
Rialto declined to comment on its fundraising activities. The latest fund, which the firm is understood to be working on with Hodes Weill & Associates, is targeting a gross internal rate of return of 18 percent to 20 percent, according to SEC filings.
According to Lennar's disclosures with the SEC, a first close was held in December 2012 with commitments of around $260 million, including $100 million committed by Lennar. At the time, the firm said the fund's objective during its three-year investment period is to “invest in distressed real estate assets and other related investments.”