Distressed Debt Helps Boost Lennar Revenue

Lennar Corp. is investing in failed bank loans and distressed real estate assets to boost revenue as demand for new houses shows few signs of revival.

March 22, 2010

Lennar Corp. is investing in failed bank loans and distressed real estate assets to boost revenue as demand for new houses shows few signs of revival. Following its purchase last month of a share of $3.05 billion of delinquent loans seized by the Federal Deposit Insurance Corp. from failed lenders, Lennar plans to buy more loans and distressed property from the FDIC or directly from banks, according to Bloomberg news service.

In addition to the FDIC purchase, Lennar’s investments include the purchase of 1,408 finished home lots and options for the rights to 1,348 others that had belonged to Tousa Inc., a Hollywood, Florida-based builder that filed for bankruptcy in 2008. It also has committed $75 million to a partnership with New York-based AllianceBernstein Holding LP to buy real estate securities through the federal government’s Public-Private Investment Program.

In July, Lennar invested $140 million for a 15 percent interest in bankrupt LandSource Communities Development LLC. LandSource, whose properties include the 15,000-acre Newhall Ranch north of Los Angeles, defaulted on $1.24 billion in debt in 2008, a year after Lennar sold most of its interest in the company for $970 million.

Lennar’s purchase of the FDIC loans gives it a 40% interest in the assets, which are composed of 5,500 mortgages on land in Nevada, Arizona, Georgia and five other states.  Ninety percent of the mortgages are behind in payments. The company’s bid valued the portfolio at $1.22 billion, or 40 cents on the dollar.

The builder and the FDIC will share proceeds from loan payments, selling foreclosed properties or developing land Lennar opts to acquire. The company can only purchase the land at market rates.

Lennar’s FDIC portfolio will increase in value this year, the company said in a February presentation. Each 10 cents of revenue the portfolio generates beyond its 40 cent purchase price creates about $122 million in profit.

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