Toll Brothers' deal with the FDIC to acquire $1.7 billion in troubled real estate loans and properties in partnership with Oaktree Capital Management is official. The acquisition of AmTrust Bank's portfolio was announced Tuesday.
News of the purchase leaked out several weeks ago, along with Toll Brothers' announcement that it had created a subsidiary called Gibraltar Capital and Asset Management to do such deals. But Tuesday's official announcement provided more details.
The portfolio includes roughly 200 loans, most non-performing, with an unpaid balance of about $1.32 billion. A significant majority of the loans were made for acquisition, development and construction. It also includes 80 real estate properties, land, lots, condominiums and single-family and multi-family communities in 17 states at various stages of completion and a book value of $382 million. The average loan/asset size is $6.1 million
The assets were from Amtrust Bank, which the FDIC took into receivership in December 2009.
In addition to Toll's Gibraltar and Oak Tree, Milestone Merchant Partners, an investment banking firm that specializes in mergers, acquisitions, capital formation and corporate restructurings for the financial services industries, is a partner in the joint venture.
The FDIC has retained a 60% equity interest in the limited liability company it created to hold the assets--Amtrust CADC. It also is providing about $303 million in non-recourse financing at 0% interest and a non-recourse advance credit facility of about $40 million for additional working capital needs with an interest rate of Libor plus 300 basis points.
Oaktree contributed about 79% of the private partner capital and Toll Brothers contributed about 20%. Milestone contributed 1%. Milestone and Gibraltar will conduct day to day management and workout for the portfolio.
Dealing with distressed assets is in Toll's DNA. It worked with the Resolution Trust Corp. in the early 1990s, acquiring land. And Gibraltar's leader at Toll, Roger A. Brush, a 17-year Toll veteran, worked with distressed real estate assets during those years. The other Gibraltar leader is Michael L. LaPat, a senior manager in the company's finance group with more than 10 years with the company working on mergers and acquisitions, due diligence, valuations, and the structuring and financing of complex ventures.
Toll follows Lennar into the distressed asset business through the FDIC. In February Lennar announced it had spent approximately $243 million (not including working capital and transaction costs) to buy 40% of a company created to hold two FDIC portfolios of 5,500 distressed residential and commercial real estate loans from 22 banks in receivership. The loans had unpaid balances totaling $3.05 billion.
The investment is being managed by Rialto, a Lennar subsidiary quietly started two years earlier with the intent of capitalizing in various distressed asset opportunities that would provide the company with management fees as well as a source for lots to feed its home-building company.
In late June, Lennar reported that Rialto had turned its first profit, bringing $5.1 million to the builder's books in the second quarter after expenses and sharing the proceeds with its partners. Rialto now has offices in Miami, Atlanta, and New York with 70 employees.