Oaktree Capital Management, in partnership with luxury builder Toll Brothers, is said to have won an auction for the $1.7 billion asset portfolio of the seized AmTrust Bank from the Federal Deposit Insurance Corp. (FDIC), according to the Financial Times.

Neither Toll Brothers nor Oaktree Capital would comment on the reported deal, and the FDIC has not issued an announcement of the sale.

Wells Fargo Securities Senior Analyst Carl Reichardt on Thursday issued a research note to investors that speculated on what might be included in the deal. "Based on conversations with industry contacts, we believe the portfolio includes a geographical mix of largely residential land, with concentrations in Florida, California, Arizona, and Las Vegas," he wrote. "Our contacts believe the portfolio has at least some higher-quality assets, but also contains large undeveloped parcels."

Cleveland-based AmTrust Bank was closed in December by the Office of Thrift Supervision, which appointed the FDIC as receiver. In October, AmTrust's total assets were listed at $12 billion with total deposits at $8 billion.

The portfolio, which includes 280 loans from AmTrust with an average value of nearly $6 million, was bought at zero interest rate, and the FDIC also took a stake in the project, according to the Financial Times.

If the sale reports are true, Toll Brothers would be the second major public home builder to take on management of distressed real estate assets in partnership with the FDIC. In February, Lennar announced that 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.

That 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 lot source for Lennar home building operations.

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 three offices in Miami, Atlanta, and New York with 70 employees.

Toll Brothers would be one of only a few large national builders with the cash and the land know-how to take on management of what is likely to be a mixed bag of distressed assets. Like Lennar, Toll has been vaunted for its land and financial acumen even as the market for high-end housing products all but disappeared during the recession. While Toll has not returned to profitability, it still had $1.55 billion in cash and securities on its books at the closure of its second quarter ending May 30.

Even if the AmTrust portfolio doesn't yield much--or any--land that Toll might decide to buy for home sites, it would be a way to put Toll's cash, which is likely generating minimal returns while banked, to work. Such deals also net companies management fees, which could keep Toll employees on the job until the company's primary business recovers.

Wells Fargo's Reichardt wrote that Toll's financial stake was unclear at the time of his note but that he believed the company may have an equity stake and may receive a fee for managing the portfolio. "If the transaction is similar to Rialto/Lennar's FDIC deal, which we believe is the case, then we believe the loan is 5- to 7-year maturity. Rialto/Lennar paid 40% per value of unpaid balance on its FDIC loan purchase. Contacts believe the price paid here would be less than 40 cents on the dollar."

Teresa Burney is a senior editor for BUILDER and BIG BUILDER magazines. 

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