04/18/2012

Rialto Rapidly Deploys Fund, Maps Follow-Up

Less than six months after it closed its debut real estate fund, Rialto Capital is readying a follow-up vehicle with a $1 billion equity goal.

The high-yield investment shop is moving quickly because it has nearly exhausted the capital in its $700 million Rialto Real Estate Fund. That opportunity vehicle held its final close last November and is almost 90% invested, according to market players.

Rialto has begun talking to investors about its plans for a second fund, which would follow a similar strategy of buying distressed debt and properties in pursuit of a 20% return. The Miami operator, a unit of homebuilder Lennar, invests in commercial real estate, residential properties and land ó often buying asset from banks and the FDIC. The manager also purchases junior classes of commercial MBS transactions.

Itís unclear whether Rialto plans to use a placement agent for what will likely be called Rialto Real Estate Fund 2. It used M3 Capital as its placement agent when it started fund raising for the debut vehicle, but had taken over those duties itself by the time of the final close. Investors in the first fund include MacArthur Foundation and fund-of-funds operator Siguler Guff.

Market players expected Rialto to quickly build a fund series, particularly after it hired Jay Mantz as president last fall. Mantz held multiple senior titles during an 18-year career at Morgan Stanley before leaving in January 2011. He worked with Morgan Stanley Real Estate Funds when that series was among the largest, and ran Morgan Stanley Real Estate Investing from 2000 to 2005.

Mantz reports to Rialto chief executive Jeff Krasnoff, who co-founded the firm in 2007 with Lennar chief executive Stuart Miller. Rialto is a wholly owned subsidiary of Lennar, but Miller has said it may eventually be spun off as a separate company, as LNR Property was in 1997.

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