Tuesday, August 17, 2010

Structured Deal: Toll Bros. buys failed home projects cheap with FDIC

TUESDAY, AUGUST 17, 2010

philly.com

(Revised): Toll Bros., the Horsham builder, and Oaktree Capital Management LP, of Los Angeles, have bought control of 80 housing developments and 200 loans to development projects in 17 states, from the failed Amtrust Bank of Cleveland , in a partnership with the Federal Deposit Insurance Corp., which took over the failed bank last year.

The portfolio includes $1.32 billion in outstanding loans and $380 million in real estate the bank had foreclosed. Many of the projects are unfinished and most are in default.

Toll and Oaktree affiliates bid around $650 million to win control of the deeply-discounted portfolio.

But they won't have to put up the money out of pocket. The FDIC agreed to lend them around $300 million, interest-free, for seven years, and will only require Toll and Oaktree to raise part of the remainder. Oaktree is putting up around $4 for every $1 Toll is investing. Gene Weil's Milestone Merchant Partners LLC also holds a small position in the deal.

Toll and its partners may end up finishing some of the developments, which include condominiums and apartments as well as single-family homes and some commercial projects. But the company is in the deal primarily as an investor, said Michael LaPat, chief financial officer of Toll Bros.' new Gibraltar Capital and Asset Management LLC unit.

Toll Bros. remains mostly a high-end homebuilder, with expected sales around $1.5 billion this year. "We've always been an opportunistic company," he told me, noting Toll bought and "worked out" developments the government took over from failed savings and loan banks in the early 1990s, before it became a national firm.
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Joseph N. DiStefano writes this blog to feed his PhillyDeals column, which is printed in the business pages of The Philadelphia Inquirer every Sunday, Tuesday, Wednesday, Thursday and Friday. Joe has worked at the Inquirer, mostly, since 1988. He has also written for Bloomberg and Gannett, authored the book Comcasted, majored in economics at Penn, and fathered six children. Reach Joe at 215-854-5194 and JoeD@phillynews.com